chapter five of business plan

5 Chapter 5 – The Business Plan

Developing your strategy.

As mentioned in Chapter 2 , it is critically important for any business organization to be able to accurately understand and identify what constitutes customer value. To do this, one must have a clear idea of who your customers are or will be. However, simply identifying customer value is insufficient. An organization must be able to provide customer value within several important constraints. One of these constraints deals with the competition—what offerings are available and at what price. Also, what additional services might a company provide? A second critically important constraint is the availability of resources to the business organization. Resources consist of factors such as money, facilities, equipment, operational capability, and personnel.

Here is an example: a restaurant identified its prime customer base as being upscale clientele in the business section of a major city. The restaurant recognized that it has numerous competitors that are interested in providing the same clientele with an upscale dining experience. Our example restaurant might provide a five-course, five-star gourmet meal to its customers. It also provides superlative service. If a comparable restaurant failed to provide a comparable meal than the example restaurant, the example restaurant would have a competitive advantage. If the example restaurant offered these sumptuous meals for a relatively low price in comparison to its competitors, it would initially seem to have even more of an advantage. However, if the price charged is significantly less than the cost of providing the meal, the service in this situation could not be maintained. In fact, the restaurant inevitably would have to go out of business. Providing excellent customer service may be a necessary condition for business survival but, in and of itself, it is not a sufficient condition.

So how does one go about balancing the need to provide customer value within the resources available while always maintaining a watchful eye on competitors’ actions? We are going to argue that what is required for that firm is to have a strategy .

The word strategy is derived from the Greek word strategos , which roughly translates into the art of the general, namely a military leader. Generals are responsible for marshaling required resources and organizing the troops and the basic plan of attack. Much in the same way, executives as owners of businesses are expected to have a general idea of the desired outcomes, acquire resources, hire and train personnel, and generate plans to achieve those outcomes. In this sense, all businesses, large and small, have strategies, whether they are clearly written out in formal business plans or reside in the mind of the owner of the business.

There are many different formal definitions of strategy with respect to business. The following is a partial listing of some of the definitions given by key experts in the field:

“A strategy is a pattern of objectives, purposes or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or to be .” [1] “The determination of the long-run goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals .” [2] “What business strategy is all about, in a word, is competitive advantage .” [3]

We define the strategy of a business as follows: A firm’s strategy is the path by which it seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm.

Whatever definition of strategy is used, it is often difficult to separate it from two other terms: strategic planning and strategic management. Both terms are often perceived as being in the domain of large corporations, not necessarily small to midsize businesses. This is somewhat understandable. The origin of strategic planning as a separate discipline occurred over fifty years ago. It was mainly concerned with assisting huge multidivisional or global businesses in coordinating their activities. In the intervening half-century, strategic planning has produced a vast quantity of literature. Mintzberg, Lampel, Ahlstrand, in a highly critical review of the field, identified ten separate schools associated with strategic planning. [4] With that number of different schools, it is clear that the discipline has not arrived at a common consensus. Strategic planning has been seen as a series of techniques and tools that would enable organizations to achieve their specified goals and objectives. Strategic management was seen as the organizational mechanisms by which you would implement the strategic plan. Some of the models and approaches associated with strategic planning and strategic management became quite complex and would prove to be fairly cumbersome to implement in all but the largest businesses. Further, strategic planning often became a bureaucratic exercise where people filled out forms, attended meetings, and went through the motions to produce a document known as the strategic plan. Sometimes what is missed in this discussion was a key element—strategic thinking. Strategic thinking is the creative analysis of the competitive landscape and a deep understanding of customer value. It should be the driver (see “Strategy Troika”) of the entire process. This concept is often forgotten in large bureaucratic organizations.

Strategy Troika

Strategic thinkers often break commonly understood principles to reach their goals. This is most clearly seen among military leaders, such as Alexander the Great or Hannibal. Robert E. Lee often violated basic military principles, such as dividing his forces. General Douglas MacArthur shocked the North Koreans with his bold landings behind enemy lines at Inchon. This mental flexibility also exists in great business leaders.

Solomon and Friedman recounted a prime example of true strategic thinking. [5] Wilson Harrell took a small, closely held, cleaning spray company known as Formula 409 to the point of having national distribution. In 1967, the position that Formula 409 held was threatened by the possible entry of Procter & Gamble into the same spray cleaning market. Procter & Gamble was a huge consumer products producer, noted for its marketing savvy. Procter & Gamble began a program of extensive market research to promote its comparable product they called Cinch. Clearly, the larger firm had a much greater advantage. Harrell knew that Procter & Gamble would perform test market research. He decided to do the unexpected. Rather than directly confront this much larger competitor, he began a program where he reduced advertising expenditures in Denver and stopped promoting his Formula 409. The outcome was that Procter & Gamble had spectacular results, and the company was extremely excited with the potential for Cinch. Procter & Gamble immediately begin a national sales campaign. However, before the company could begin, Harrell introduced a promotion of his own. He took the Formula 409 sixteen-ounce bottle and attached it to a half-gallon size bottle. He then sold both at a significant discount. This quantity of spray cleaner would last the average consumer six to nine months. The market for Procter & Gamble’s Cinch was significantly reduced. Procter & Gamble was confused and confounded by its poor showing after the phenomenal showing in Denver. Confused and uncertain, the company chose to withdraw Cinch from the market. Wilson Harrell’s display of brilliant strategic thinking had bested them. He leveraged his small company’s creative thinking and flexibility against the tremendous resources of an international giant. Through superior strategic thinking, Harrell was able to best Procter & Gamble.

Do You Have a Strategy and What Is It?

We have argued that all businesses have strategies, whether they are explicitly articulated or not. Perry stated that “small business leaders seem to recognize that the ability to formulate and implement an effective strategy has a major influence on the survival and success of small business.” [6]

The extent to which a strategy should be articulated in a formal manner, such as part of a business plan, is highly dependent on the type of business. One might not expect a formally drafted strategy statement for a nonemployee business funded singularly by the owner. One researcher found that formal plans are rare in businesses with fewer than five employees. [7] However, you should clearly have that expectation for any other type of small or midsize business.

Any business with employees should have an articulated strategy that can be conveyed to them so that they might better assist in implementing it. Curtis pointed out that in the absence of such communication, “employees make pragmatic short-term decisions that cumulatively form an ad-hoc strategy.” [8] These ad hoc (realized) strategies may be at odds with the planned (intended) strategies to guide a firm. [9] However, any business that seeks external funding from bankers, venture capitalists, or “angels” must be able to specify its strategy in a formal business plan.

Clearly specifying your strategy should be seen as an end in itself. Requiring a company to specify its strategy forces that company to think about its core issues, such as the following:

• Who are your customers?
• How are you going to provide value to those customers?
• Who are your current and future competitors?
• What are your resources?
• How are you going to use these resources?

One commentator in a blog put it fairly well, “It never ceases to amaze me how many people will use GPS or Google maps for a trip somewhere but when it comes to starting a business they think that they can do it without any strategy, or without any guiding road-map.” Harry Tucci, comment posted to the following blog: [10]

Types of Strategies

In 1980, Michael Porter a professor at Harvard Business School published a major work in the field of strategic analysis— Competitive Strategy . [11] To simplify Porter’s thesis, while competition is beneficial to customers, it is not always beneficial to those who are competing. Competition may involve lowering prices, increasing research and development (R&D), and increasing advertising and other expenses and activities—all of which can lower profit margins. Porter suggested that firms should carefully examine the industry in which they are operating and apply what he calls the five forces model. These five forces are as follows: the power of suppliers, the power of buyers, the threat of substitution, the threat of new entrants, and rivalry within the industry. We do not need to cover these five forces in any great detail, other than to say that once the analysis has been conducted, a firm should look for ways to minimize the dysfunctional consequences of competition. Porter identified four generic strategies that firms may choose to implement to achieve that end. Actually, he initially identified three generic strategies, but one of them can be bifurcated. These four strategies are as follows (see “Generic Strategies”): cost leadership, differentiation, cost focus, and differentiation focus. These four generic strategies can be applied to small businesses. We will examine each strategy and then discuss what is required to successfully implement them.

Generic Strategies

Low-Cost Advantage

A  cost leadership strategy requires that a firm be in the position of being the lowest cost producer in its competitive environment. By being the lowest-cost producer, a firm has several strategic options open to it. It can sell its product or service at a lower price than its competitors. If price is a major driver of customer value, then the firm with the lowest price should sell more. The low-cost producer also has the option of selling its products or services at prices that are comparable to its competitors. However, this would mean that the firm would have a much higher margin than its competitors.

Obviously, following a cost leadership strategy dictates that the business be good at curtailing costs. Perhaps the clearest example of a firm that employs a cost leadership strategy is Walmart. Walmart’s investment in customer relations and inventory control systems plus its huge size enables it to secure the “best” deals from suppliers and drastically reduce costs. It might appear that cost leadership strategies are most suitable for large firms that can exploit economies of scale. This is not necessarily true. Smaller firms can compete on the basis of cost leadership. They can position themselves in low-cost areas, and they can exploit their lower overhead costs. Family businesses can use family members as employees, or they can use a web presence to market and sell their goods and services. A small family-run luncheonette that purchases used equipment and offers a limited menu of standard breakfast and lunch items while not offering dinner might be good example of a small business that has opted for a cost leadership strategy.

Differentiation

A  differentiation strategy involves providing products or services that meet customer value in some unique way. This uniqueness may be derived in several ways. A firm may try to build a particular brand image that differentiates itself from its competitors. Many clothing lines, such as Tommy Hilfiger, opt for this approach. Other firms will try to differentiate themselves on the basis of the services that they provide. Dominoes began to distinguish itself from other pizza firms by emphasizing the speed of its delivery. Differentiation also can be achieved by offering a unique design or features in the product or the service. Apple products are known for their user-friendly design features. A firm may wish to differentiate itself on the basis of the quality of its product or service. Kogi barbecue trucks operating in Los Angeles represent such an approach. They offer high-quality food from mobile food trucks.” [12] They further facilitate their differentiation by having their truck routes available on their website and on their Twitter account.

Adopting a differentiation strategy requires significantly different capabilities than those that were outlined for cost leadership. Firms that employ a differentiation strategy must have a complete understanding of what constitutes customer value. Further, they must be able to rapidly respond to changing customer needs. Often, a differentiation strategy involves offering these products and services at a premium price. A differentiation strategy may accept lower sales volumes because a firm is charging higher prices and obtaining higher profit margins. A danger in this approach is that customers may no longer place a premium value on the unique features or quality of the product or the service. This leaves the firm that offers a differentiation strategy open to competition from those that adopt a cost leadership strategy.

Focus—Low Cost or Differentiation

Porter identifies the third strategy—focus. He said that focus strategies can be segmented into a  cost focus and a differentiation focus .

In a focus strategy, a firm concentrates on one or more segments of the overall market. Focus can also be described as a niche strategy. Focus strategy entails deciding to some extent that we do not want to have everyone as a customer. There are several ways that a firm can adopt a focus perspective:

• Product line. A firm limits its product line to specific items of only one or more product types. California Cart Builder produces only catering trucks and mobile kitchens.
• Customer. A firm concentrates on serving the needs of a particular type of customer. Weight Watchers concentrates on customers who wish to control their weight or lose weight.
• Geographic area. Many small firms, out of necessity, will limit themselves to a particular geographic region. Microbrewers generally serve a limited geographic region.
• Particular distribution channel. Firms may wish to limit themselves with respect to the means by which they sell their products and services. Amazon began and remains a firm that sells only through the Internet.

Firms adopting focus strategies look for distinct groups that may have been overlooked by their competitors. This group needs to be of sufficiently sustainable size to make it an economically defensible option. One might open a specialty restaurant in a particular geographic location—a small town. However, if the demand is not sufficiently large for this particular type of food, then the restaurant will probably fail. Companies that lack the resources to compete on either a national level or an industry-wide level may adopt focus strategies. Focus strategies enable firms to marshal their limited resources to best serve their customers.

As previously stated, focus strategies can be bifurcated into two directions—cost focus or differentiation focus. IKEA sells low-priced furniture to those customers who are willing to assemble the furniture. It cuts its costs by using a warehouse rather than showroom format and not providing home delivery. Michael Dell began his business out of his college dormitory. He took orders from fellow students and custom-built computers to their specifications. This was a cost focus strategy. By building to order, it almost totally eliminated the need for any incoming, work-in-process, or finished goods inventories.

A focus differentiation strategy concentrates on providing a unique product or service to a segment of the market. This strategy may be best represented by many specialty retail outlets. The Body Shop focuses on customers who want natural ingredients in their makeup. Max and Mina is a kosher specialty ice cream store in New York City. It provides a constantly rotating menu of more than 300 exotic flavors, such as Cajun, beer, lox, corn, and pizza. The store has been written up in the New York Times and People magazine. Given its odd flavors, Max and Mina’s was voted the number one ice cream parlor in America in 2004. [13]

Evaluating Strategies

The selection of a generic strategy by a firm should not be seen as something to be done on a whim. Once a strategy is selected, all aspects of the business must be tied to implementing that strategy. As Porter stated, “Effectively implementing any of these generic strategies usually requires total commitment and supporting organizational arrangements.” [14] The successful implementation of any generic strategy requires that a firm possess particular skills and resources. Further, it must impose particular requirements on its organization (see “Summary of Generic Strategies”).

Even successful generic strategies must recognize that market and economic conditions change along with the needs of consumers. Henry Ford used a cost leadership strategy and was wildly successful until General Motors began to provide different types of automobiles to different customer segments. Likewise, those who follow a differentiation strategy must be cautious that customers may forgo “extras” in a downturn economy in favor of lower costs. This requires businesses to be vigilant, particularly with respect to customer value.

Summary of Generic Strategies

Generic Strategy	Required Activities	Issues
Cost leadership
Differentiation
Focus—low cost
Focus—differentiation

Key Takeaways

• Any firm, regardless of size, needs to know how it will compete; this is the firm’s strategy.
• Strategy identifies how a firm will provide value to its customers within its operational constraints.
• Strategy can be reduced to four major approaches—cost leadership, differentiation, cost focus, and differentiation focus.
• Once a given strategy is selected, all of a firm’s operations should be geared to implementing that strategy.
• No strategy will be successful forever and therefore needs to be constantly evaluated.

The Necessity for a Business Plan

An intelligent plan is the first step to success. The man who plans knows where he is going, knows what progress he is making and has a pretty good idea of when he will arrive. Planning is the open road to your destination. If you don’t know where you’re going, how can you expect to get there? – Basil Walsh

In Chapter 1, we discussed the issue of failure and small businesses. Although research on small business failure has identified many factors, one reason that always appears at the top of any list is the failure to plan. Interestingly, some people argue that planning is not essential for a start-up business, but they are in a distinct minority. [15] The overwhelming consensus is that a well-developed plan is essential for the survival of any small (or large) business. [16] Perry found that firms with more than five people benefit from having a well-developed business plan. [17]

A recent study found that there was a near doubling of successful growth for those businesses that completed business plans compared to those that did not create one. It must be pointed out that this study might be viewed as being biased because the founder of the software company whose main product is a program that builds business plans conducted the study. However, the results were examined by academics from the University of Oregon who validated the overall results. They found that “except in a small number of cases, business planning appeared to be positively correlated with business success as measured by our variables. While our analysis cannot say the completing of a business plan will lead to success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to produce a successful business.” [18]

Basically, there are two main reasons for developing a comprehensive business plan: (1) a plan will be extraordinarily useful in ensuring the successful operation of your business; and (2) if one is seeking to secure external funds from banks, venture capitalists, or other investors, it is essential that you be able to demonstrate to them that they will be recovering their money and making a profit. Let us examine each reason in detail.

Many small business owners operate under a mistaken belief that the only time that they need to create a business plan is at the birth of the company or when they are attempting to raise additional capital from external sources. They fail to realize that a business plan can be an important element in ensuring day-to-day success.

The initial planning process aids the operational success of a small business by allowing the owner a chance to review, in detail, the viability of the business idea. It forces one to rigorously consider some key questions:

• Is the business strategy feasible?
• What are the chances it will make money?
• Do I have the operational requirements for starting and running a successful business?
• Have I considered a well-thought-out marketing plan that clearly identifies who my customers will be?
• Do I clearly understand what value I will provide to these customers?
• What will be the means of distribution to provide the product or the service to my customers?
• Have I clarified to myself the financial issues associated with starting and operating the business?
• Do I have to reexamine these notions to ensure success?

Possessing an actual written plan enables you to have people outside the organization evaluate your business plan. Using friends, colleagues, partners, or even consultants may provide you with an unbiased evaluation of the assumptions.

It is not enough to create an initial business plan; you should anticipate making the planning process an annual activity. The Prussian military theorist von Moltke once argued that no military plan survives the first engagement with the enemy. Likewise, no company evolves in the same way as outlined in its initial business plan.

Overcoming the Reluctance to Formally Plan

By failing to prepare, you will prepare them to fail . -Benjamin Franklin

Unfortunately, it appears that many small businesses do not make any effort to build even an initial business plan, let alone maintain a planning process as an ongoing operation, even though there is clear evidence that the failure to plan may have serious consequences for the future success of such firms. This unwillingness to plan may be understandable in nonemployee businesses, but it is inexcusable as a business grows in size. Why, therefore, do some businesses fail to begin the planning process?

• We do not need to plan. One of the prime reasons individuals fail to produce a business plan is that they believe that they do not have to plan. This may be attributable to the size of the firm; nonemployee firms that have no intention of seeking outside financing might sincerely believe that they have no need for a formal business plan. Others may believe that they so well understand the business and/or industry that they can survive and prosper without the burdensome process of a business plan. The author of Business Plan for Dummies , Paul Tiffany, once argued that if one feels lucky enough to operate a business successfully without resorting to a business plan, then he or she should forget about starting a business and head straight to Las Vegas.
• I am too busy to plan. Anyone who has ever run a business on his or her own can understand this argument. The day-to-day demands of operating a business may make it seem that there is insufficient time to engage in any ancillary activity or prepare a business plan. Individuals who accept this argument often fail to recognize that the seemingly endless buzz of activities, such as constantly putting out fires, may be the direct result of not having thought about the future and planned for it in the first place.
• Plans do not produce results. Small-business owners (entrepreneurs) are action- and results-oriented individuals. They want to see a tangible outcome for their efforts, and preferably they would like to see the results as soon as possible. The idea of sitting down and producing a large document based on assumptions that may not play out exactly as predicted is viewed as a futile exercise. However, those with broader experience understand that there will be no external funding for growth or the initial creation of the business without the existence of a well-thought-out plan. Although plans may not yield the specified results contained within them, the process of thinking about the plan and building it often yield results that the owner might not initially appreciate.
• We are not familiar with the process of formal planning. This argument might initially appear to have more validity than the others. Developing a comprehensive business plan is a daunting task. It might seem difficult if not impossible for someone with no experience with the concept. Several studies have indicated that small business owners are more likely to engage in the planning process if they have had prior experience with planning models in their prior work experience. [19] Fortunately, this situation has changed rather significantly in the last decade. As we will illustrate, there are numerous tools that provide significant support for the development of business plans. We will see that software packages greatly facilitate the building of any business plan, including marketing plans and financial plans for small businesses. We also show that the Internet can provide an unbelievably rich source of data and information to assist in the building of these plans.

Although one could understand the reticence of someone new to small business (or in some cases even seasoned entrepreneurs), their arguments fall short with respect to the benefits that will be derived from conducting a structured and comprehensive business planning process.

Plans for Raising Capital

Every business plan should be written with a particular audience in mind. The annual business plan should be written with a management team and for the employees who have to implement the plan. However, one of the prime reasons for writing a business plan is to secure investment funds for the firm. Of course, funding the business could be done by an individual using his or her own personal wealth, personal loans, or extending credit cards. Individuals also can seek investments from family and friends. The focus here will be on three other possible sources of capital—banks, venture capitalists, and angel investors. It is important to understand what they look for in a business plan. Remember that these three groups are investors, so they will be anticipating, at the very least, the ability to recover their initial investment if not earn a significant return.

Bankers, like all businesspeople, are interested in earning a profit; they want to see a return on their investment. However, unlike other investors, bankers are under a legal obligation to ensure that the borrower pledge some form of collateral to secure the loan. [20] This often means that banks are unwilling to fund a start-up business unless the owner is willing to pledge some form of collateral, such as a second mortgage on his or her home. Many first-time business owners are not in a position to do that; securing money from a bank occurs most frequently for an existing business that is looking to expand or for covering a short-term cash-flow need. Banks may lend to small business owners who are opening a second business provided that they can prove a record of success and profitability.

Banks will require a business plan. It should be understood that bank loan officers will initially focus on the financial components of that client, namely, the income statement, balance sheet, and the cash-flow statement. The bank will examine your projections with respect to known industry standards. Therefore, the business plan should not project a 75 percent profit margin when the industry standard is 15 percent, unless the author of the plan can clearly document why he or she will be earning such a high return.

Some businesses may raise funds with the assistance of a Small Business Administration (SBA) loan. These loans are always arranged through a commercial bank. With these loans, the SBA will pledge up to 70 percent of the total value of the loan. This means that the owner still must provide, at the very least, 30 percent of the total collateral. The ability to secure one of these loans is clearly tied to the adequacy of the business plan.

Venture Capitalists

Another possible source of funding is venture capitalists . The first thing that one should realize about venture capitalists is that they are not in it just to make a profit; they want to make returns that are substantially above those to be found in the market. For some, this translates into the ability to secure five to ten times their initial investment and recapture their investment in a relatively short period of time—often less than five years. It has been reported that some venture capitalists are looking for returns in the order of twenty-five times their original investment. [21]

The financial statement, particularly the profit margin, is obviously important to venture capitalists, but they will also be looking at other factors. The quality of the management team identified in the business plan will be examined. They will be looking at the team’s experience and track record. Other factors needed by venture capitalists may include the projected growth rate of the market, the extent to which the product or the service being offered is unique, the overall size of the market, and the probability of producing a highly successful product or service.

Businesses that are seeking financing from banks know that they must go to loan officers who will review the plan, even though a computerized loan assessment program may make the final decision. With venture capitalists, on the other hand, you often need to have a personal introduction to have your plan considered. You should also anticipate that you will have to make a presentation to venture capitalists. This means that you have to understand your plan and be able to present it in a dynamic fashion.

Angel Investors

The third type of investor is referred to as angel investors , a term that originally came from those individuals who invested in Broadway shows and films. Many angel investors are themselves successful entrepreneurs. As with venture capitalists, they are looking for returns higher than they can normally find in the market; however, they often expect returns lower than those anticipated by venture capitalist. They may be attracted to business plans because of an innovative concept or the excitement of entering a new type of business. Being successful small business owners, many angel investors will not only provide capital to fund the business but also bring their own expertise and experience to help the business grow. It has been estimated that these angel investors provide between three and ten times as much money as venture capitalists for the development of small businesses. [22]

Angel investors will pay careful attention to all aspects of the proposed business plan. They expect a comprehensive business plan—one that clearly specifies the future direction of the firm. They also will look at the management team not only for its track record and experience but also their (the angel investor’s) ability to work with this team. Angel investors may take a much more active role in the management of the business, asking for positions on the board of directors, taking an equity position in the firm, demanding quarterly reports, or demanding that the business not take certain actions unless it has the approval of these angel investors. These investors will take a much more hands-on approach to the operations of a firm.

• Planning is a critical and important component of ensuring the success of a small business.
• Some form of formal planning should not only accompany the start-up of a business but also be a regular (annual) activity that guides the future direction of the business.
• Many small business owners are reluctant to formally plan. They can produce many excuses for not planning.
• Businesses may have to raise capital from external sources—bankers, venture capitalists, or angel investors. Each type of investor will expect a business plan. Each type of investor will be more or less interested in different parts of the plan. Business owners should be aware of what parts of the plan each type of investor will focus on.

Building a Plan

Before talking about writing a formal business plan, someone interested in starting a business might want to think about doing some personal planning before drafting the business plan. Some of the questions that he or she might want to answer before drafting a full business plan are as follows:

• Why am I going into this business?
• What skills and resources do I possess that will help make the business a success?
• What passion do I bring to this business?
• What is my risk tolerance?
• Exactly how hard do I intend to work? How many hours per week?
• What impact will the business have on my family life?

What do I really wish from this business?

• Am I interested in financial independence?
• What level of profits will be required to maintain my personal and/or family’s lifestyle?
• Am I interested in independence of action (no boss but myself)?
• Am I interested in personal satisfaction?
• Will my family be working in this business?
• What other employees might I need? [23]

Having addressed these questions, one will be in a much better position to craft a formal business plan.

Gathering Information

Building a solid business plan requires knowing the economic, market, and competitive environments. Such knowledge transcends “gut feelings” and is based on data and evidence. Fortunately, much of the required information is available through library resources, Internet sources, and government agencies and, for a fee, from commercial sources. Comprehensive business plans may draw from all these sources.

Public libraries and those at educational institutions provide a rich resource base that can be used at no cost. Some basic research sources that can be found at libraries are given in this section— be aware that the reference numbers provided may differ from library to library .

Library Sources

Background sources.

• Berinstein, Paula. Business Statistics on the Web: Find Them Fast—At Little or No Cost (Ref HF1016 .B47 2003).
• The Core Business Web: A Guide to Information Resources (Ref HD30.37 .C67 2003).
• Frumkin, Norman. Guide to Economic Indicators , 4th ed. (Ref HC103 .F9 2006). This book explains the meanings and uses of the economic indicators.
• Solie-Johnson, Kris. How to Set Up Your Own Small Business , 2 volumes (Ref HD62.7 .S85 2005). Published by the American Institute of Small Business.

Company and Industry Sources

• North American Industry Classification System, United States (NAICS), 2007 (Ref HF1042 .N6 2007). The NAICS is a numeric industry classification system that replaced the Standard Industrial Classification (SIC) system. An electronic version is available from the US Census Bureau .
• Standard Industrial Classification Manual (Ref HA40 .I6U63 1987). The industry classification system that preceded the NAICS.
• Value Line Investment Survey (Ref HG4751 .V18). Concise company and industry profiles are updated every thirteen weeks.

Statistical Sources

• Almanac of Business and Industrial Financial Ratios (Ref HF5681 .R25A45 2010).
• Business Statistics of the United States (Ref HC101 .A13123 2009). This publication provides recent and historical information about the US economy.
• Economic Indicators (1971–present). The Council of Economic Advisers for the Joint Economic Committee of Congress publishes this monthly periodical; recent years are in electronic format only. Ten years of data are presented. Electronic versions are available in ABI/INFORM and ProQuest from September 1994 to present and Academic OneFile from October 1, 1991.
• Industry Norms and Key Business Ratios (Dun & Bradstreet; Ref HF5681 .R25I532 through Ref HF5681 .I572 [2000–2001 through 2008–2009]).
• Rma Annual Statement Studies (Ref HF5681 .B2R6 2009–2010). This publication provides annual financial data and ratios by industry.
• Statistical Abstract of the United States (Ref HA202 .S72 2010). This is the basic annual source for statistics collected by the government. Electronic version is available at www.census.gov/compendia/statstatab .
• Survey of Current Business (1956–present). The Bureau of Economic Analysis publishes this monthly periodical; recent years are in electronic format only.

At some libraries, you may find access to the following resources online:

• Mergent Webreports. Mergent (formerly Moody’s) corporate manuals are in digitized format. Beginning with the early 1900s, the reports include corporate history, business descriptions, and in-depth financial statements. The collection is searchable by company name, year, or manual type.
• ProQuest Direct is a database of general, trade, and scholarly periodicals, with many articles in full text. Many business journals and other resources are available.
• Standard and Poor’s Netadvantage is a database that includes company and industry information.

Internet Resources

In addition to government databases and other free sources, the Internet provides an unbelievably rich storehouse of information that can be incorporated into any business plan. It is not feasible to provide a truly comprehensive list of useful websites; this section provides a highly selective list of government sites and other sites that provide free information.

Government Sites

• US Small Business Administration (SBA) . This is an excellent site to begin researching a business plan. It covers writing a plan, financing a start-up, selecting a location, managing employees, and insurance and legal issues. A follow-up page at http://www.sba.gov provides access to publications, statistics, video tutorials, podcasts, business forms, and chat rooms. Another page— http://www.sba.gov/about-offices-list/2 —provides access to localized resources.
• SCORE Program . The SCORE program is a partner of the SBA. It provides a variety of services to small business owners, ranging from online (and in-person) mentoring, workshops, free computer templates, and advice on a wide range of small business issues.

In developing a business plan, it is necessary to anticipate the future economic environment. The government provides extensive statistics online.

• Consumer Price Index . This index provides information on the direction of prices for industries and geographic areas.
• Producer Price Index . Businesses that provide services or are focused on business-to-business (B2B) operations may find these data more appropriate for estimating future prices.
• National Wage Data . This site provides information on prevailing wages and can be broken down by occupation and location down to the metropolitan area.
• Consumer Expenditures Survey . This database provides information on expenditures and income. It allows for a remarkable level of refinement by occupation, age, or race.
• State and Local Personal Income and Employment . These databases provide a breakdown of personal income by state and metropolitan area.
• GDP by State and Metropolitan Region . This will provide an accurate guide to the overall economic health of a region or a city.
• US Census . This is a huge site with databases on population, income, foreign trade, economic indicators, and business ownership.

There are nongovernment websites, either free or charging a fee, that can provide assistance in building a business plan. A simple Google search for the phrase small business plan yields more than 67 million results. Various sites will either help with writing the plan, offer to write the plan for a fee, produce reports on industries, or assist small businesses by providing a variety of support services. The Internet offers a veritable cornucopia of information and support for those working on their business plans.

Forecasting for the Plan

Prediction is very difficult, especially about the future. Nils Bohr, Nobel Prize winner

Any business plan is a future-oriented document. Business plans are required to look between three and five years into the future. To produce them and accurately forecast sales, you will need estimates of expenses and other items, such as the required number of employees, interest rates, and general economic conditions. There are many different techniques and tools that can be used to forecast these items. The type of techniques used will be influenced by many factors, such as the following:

• The size of the business. Smaller businesses may have fewer resources to apply a wide variety of forecasting techniques.
• The analytical sophistication of people who will be conducting the forecast. The owner of a home business may have no prior experience with forecasting techniques.
• The type of the organization. A manufacturing concern that sells to a stable and relatively predictable environment that has been in existence for years might be able to employ a variety of standard statistical forecasting techniques; however, a small firm operating in a new or a chaotic environment might have to rely on significantly different techniques.
• Historical records. Does the firm have historical records for sales that can be used to project into the future?

There is no universal set of forecasting techniques that can be used for all types of small and midsize businesses. Forecasting can fall into a fairly comprehensive range of techniques with respect to level of sophistication. Some forecasting can be done on an intuitive basis (e.g., back-of-the-envelope calculations); others can be done with standard computer programs (e.g., Excel) or programs that are specifically dedicated to forecasting in a variety of environments.

A brief review of basic forecasting techniques shows that they can be divided into two broad classes:  qualitative forecasting methods and quantitative forecasting methods . Actually, these terms can be somewhat misleading because qualitative forecasting methods do not imply that no numbers will be involved. The two techniques are separated by the following concept: qualitative forecasting methods assume that one either does not have historical data or that one cannot rely on past historical data. A start-up business has no past sales that can be used to project future sales. Likewise, if there is a significant change in the environment, one may feel uncomfortable using past data to project into the future. A restaurant operates in a small town that contains a large automobile factory. After the factory closes, the restaurant owner should anticipate that past sales will no longer be a useful guideline for projecting what sales might be in the next year or two because the owner has lost a number of customers who worked at the factory. Quantitative forecasting, on the other hand, consists of techniques and methods that assume you can use past data to make projections into the future.

“Overview of Forecasting Methods” provides examples of both qualitative forecasting methods and quantitative forecasting methods for sales forecasting. Each method is described, and their strengths and weaknesses are given.

Overview of Forecasting Methods

Technique	Description	Strength	Weakness
Simple extrapolation	This approach uses some data and simply makes a projection based on these data. The data might indicate that a particular section of town has many people walk through the section each day. Knowing that number, a store might make a simple estimate of what sales might be.	An extremely simple technique that requires only the most basic analytical capabilities.	Its success depends on the “correctness” of the assumptions and the ability to carry them over to reality. You might have the correct number of people passing your store, but that does not mean that they will buy anything.
Sales force	In firms with dedicated sales forces, you would ask them to estimate what future sales might be. These values would be pieced together with a forecast for next year.	The sales force should have the pulse of your customers and a solid idea of their intentions to buy. Its greatest strength is in the B2B environment.	Difficult to use in some business-to-customer (B2C) environments. Sales force members are compensated when they meet their quotas, but this might be an incentive to “low-ball” their estimates.
Expert opinion	Similar to sales force approach, this technique ask experts within the company to produce estimates of future sales. These experts may come from marketing, R&D, or top-level management.	Coalescing sales forecasts of experts should lead to better forecasts.	Teams can produce biased estimates and can be influenced by particular members of the team (i.e., the CEO).
Delphi	A panel of outside experts would be asked to estimate sales for a particular product or service. The results would be summarized in a report and given to the same panel of experts. They would then be asked to read their forecast. This might go through several iterations.	Best used for entirely new product service categories.	One has to be able to identify and recruit “experts” from outside the organization.
Historical analogy	With this technique, one finds a similar product’s or service’s past sales (life cycle) and extrapolates to your product or service. A new start-up has developed an innovative home entertainment product, but nothing like it has been seen in the market. You might examine past sales of CD players to get a sense of what future sales of the new product might be like.	One can acquire a sense of what factors might affect future sales. It is relatively easy and quick to develop.	One can select the wrong past industry to compare, and the future may not unfold in a similar manner.
Market research	The use of questionnaires and surveys to evaluate customer attitudes toward a product or a service.	One gains very useful insights into the stated desires and interests of consumers. Can be highly accurate in the short term.	Experienced individuals should do these. They can take time to conduct and are relatively expensive.
Trend analysis	This forecasting technique assumes that sales will follow some form of pattern. For example, sales are projected to increase at 15 percent a year for the next five years.	Extremely simple to calculate.	Sales seldom follow the same growth rate over any length of time.
Moving average	This technique takes recent class data for number of periods, adds them together, and divides by the number to produce a forecast.	Easy to calculate.	The basic use of this type of model fails to consider the existence of trends or seasonality in the data.
Seasonality analysis	Many products and services do not have uniform sales throughout the year. They exhibit seasonality. This technique attempts to identify the proportion of annual sales sold for any given time. The sales of swimming pool supplies in the Northeast, for example, would be much higher in the spring and summer than in the fall and winter.	Many products and services have seasonal demand patterns. By considering such patterns, forecasts can be improved.	Requires several years of past data and careful analysis. Useful for quarterly or monthly forecasts.
Exponential smoothing	This analytical technique attempts to correct forecasts by some proportion of the past forecast error.	Incorporates and weighs most recent data. Attempts to factor in recent fluctuations.	Several types of this model exist, and users must be familiar with their strengths and weaknesses. Requires extensive data, computer software, and a degree of expertise to use and interpret results.
Causal models—regression analysis	Causal models, of which there are many, attempt to identify why sales are increasing or decreasing. Regression is a specific statistical technique that relates the value of the dependent variable to one or more independent variables. The dependent variable sales might be affected by price and advertising expenditures, which are independent variables.	Can be used to forecast and examine the possible validity of relationships, such as the impact on sales by advertising or price.	Requires extensive data, computer software, and a high degree of expertise to use and interpret results.

Forecasting key items such as sales is crucial in developing a good business plan. However, forecasting is a very challenging activity. The further out the forecast, the less likely it will be accurate. Everyone recognizes this fact. Therefore, it is useful to draw on a variety of forecasting techniques to develop your final forecast for the business plan. To do that, you should have a fairly solid understanding of the strengths and weaknesses of the various approaches. There are many books, websites, and articles that could assist you in understanding these techniques and when they should or should not be used. In addition, one should be open to gathering additional information to assist in building a forecast. Some possible sources of such information would be associations, trade publications, and business groups. Regardless of what technique is used or the data source employed in building a forecast for business plan, one should be prepared to justify why you are employing these forecasting models.

Web Resources for Forecasting

• Three methods of sales forecasting ( sbinfocanada.about.com/od/cashflowmgt/a/salesforecast.htm ). This site provides three simplified approaches to sales forecasting.
• Time-critical decision making for business administration ( home.ubalt.edu/ntsbarsh/stat-data/forecast.htm ). This site has an e-book format with several chapters devoted to analytical forecasting techniques.

Building your first business plan may seem extremely formidable. This may explain why there are so many software packages available to assist in this task. After building your first business plan, that steep learning curve should make subsequent plans for the business or other businesses significantly easier.

In preparing to build a business plan, there are some problem areas or mistakes that you should be on guard to avoid. Some may be technical in nature, while others relate to content issues. For the technical side, first and foremost, one should make sure that there are no misspellings or punctuation errors. The business plan should follow a logical structure. No ideal business plan clearly specifies the exact sections that need to be included nor is there an ideal length. Literature concerning business plans indicates that the appropriate length of the body of a business plan line should be between twenty and forty pages. This does not include appendixes that might provide critical data for the reader.

In developing a lengthy report, sometimes it is easy to fall into clichés or overused expressions. These should be avoided. Consider the visuals in the report. Data should be placed in either clearly mapped-out tables or well-designed graphs. The report should be as professional-looking as possible. Anticipate the audience that will be reading the report and write in a way that easily reaches them; avoid using too much jargon or technical terms.

The content in any business plan centers on two areas: realism and accuracy.

Components of the Plan

There is no idealized structure for a business plan or a definitive number of sections that it must contain. The following subsections discuss the outline of a plan for a business start-up and identify some of the major sections that should be part of the plan.

The cover page provides the reader with information about either the author of the plan or the person to contact concerning the business plan. It should contain all the pertinent information to enable the reader to contact the author, such as the name of the business, the business logo, and the contact person’s address, telephone number, and e-mail address.

The table of contents enables the reader to find the major sections and components of the plan. It should identify the key sections and subsections and on which pages those sections begin. This enables the reader to turn to sections that might be of particular importance.

Executive Summary

The  executive summary is a section of critical importance and is perhaps the single most important section of the entire business plan. Quite often, it is the first section that a reader will turn to, and sometimes it may be the only section of the business plan that he or she will read. Chronologically, it should probably be the last section written. [24] The executive summary should provide an accurate overview of the entire document, which cannot be done until the whole document is prepared.

If the executive summary fails to adequately describe the idea behind the business or if it fails to do so in a captivating way, some readers may discard the entire business plan. As one author put it, the purpose of the executive summary is to convince the reader to “read on.” [25] The executive summary should contain the following pieces of information:

• What is the company’s business?
• Who are its intended customers?
• What will be its legal structure?
• What has been its history (where one exists)?
• What type of funding will be requested?
• What is the amount of that funding?
• What are the capabilities of the key executives?

All this must be done in an interesting and captivating way. The great challenge is that executive summaries should be relatively short—between one and three pages. For many businesspeople, this is the great challenge—being able to compress the required information in an engaging format that has significant size limitations.

Business Section

Goals. These are broad statements about what you would like to achieve some point in the near future. Your goals might focus on your human resource policies (“We wish to have productive, happy employees”), on what you see as the source of your competitive advantage (“We will be best in service”), or on financial outcomes (“We will produce above average return to our investors.”) Goals are useful, but they can mean anything to anyone. It is therefore necessary to translate the goals into objectives to bring about real meaning so that they can guide the organization. Ideally, objectives should be SMART —specific, measurable, achievable, realistic, and have a specific timeline for completion. Here is an example: one organizational goal may be a significant rise in sales and profits. When translating that goal into an objective, you might word the objectives as follows: a 15 percent increase in sales for the next three years followed by a 10 percent increase in sales for the following two years and a 12.5 percent increase in profits in each of the next five years. These objectives are quite specific and measurable. It is up to the decision-maker to determine if they are achievable and realistic. These objectives—sales and profits—clearly specify the time horizon. In developing the plan, owners are often very happy to develop goals because they are open to interpretation, but they will avoid objectives. Goals are sufficiently ambiguous, whereas objectives tie you to particular values that you will have to hit in the future. People may be concerned that they will be weighed on a scale and found wanting for failing to achieved their objectives. However, it is critical that your plan contains both goals and objectives. Objectives allow investors and your employees to clearly see where the firm intends to go. They produce targeted values to aim for and, therefore, are critical for the control of the firm’s operations.

Vision and Mission Statements. To many, there is some degree of confusion concerning the difference between a vision statement and a mission statement.  Vision statements articulate the long-term purpose and idealized notion of what a business wishes to become. In the earliest days of Microsoft, when it was a small business, its version of a vision statement was as follows: “A computer on every desk and in every home.” In the early 1980s, this was truly a revolutionary concept. Yet it gave Microsoft’s employees a clear idea (vision) that to bring that vision into being, the software being developed would have to be very “user-friendly” in comparison to the software of that day. Mission statements , which are much more common in small business plans, articulate the fundamental nature of the business. This means identifying the type of business, how it will leverage its competencies, and possibly the values that drive the business. Put simply, a mission statement should address the following questions:

• Who are we? What business are we in?
• Who do we see as our customers?
• How do we provide value for those customers?

Sometimes vision and mission statements are singularly written for external audiences, such as investors or shareholders. They are not written for the audience for whom it would have the greatest meaning—the management team and the employees of the business. Unfortunately, many recognize that both statements can become exercises of stringing together a series of essentially meaningless phrases into something that appears to sound right or professional . You can find software on the web to automatically generate such vacuous and meaningless statements.

Sometimes a firm will write a mission statement that provides customers, investors, and employees with a clear sense of purpose of that company. Zappos has the following as its mission statement: “Our goal is to position Zappos as an online service leader. If we can get customers to associate Zappos as the absolute best in service, then we can expand beyond shoes.” [26] The mission statement of Ben & Jerry’s Ice Cream focuses both on defining their product and their values: “To make, distribute and sell the finest quality all-natural ice cream and euphoric concoctions with a continued commitment to incorporating wholesome, natural ingredients and promoting business practices that respect the Earth and the Environment.” [27]

Keys to Success . This section identifies those specific elements of your firm that you believe will ensure success. It is important for you to be able to define the competencies that you intend to leverage to ensure success. What makes your product or service unique? What specific set of capabilities do you bring to the competitive scene? These might include the makeup of and the experience of your management team; your operational capabilities (e.g., unique skills in design, manufacturing, or delivery); your marketing skill sets: your financial capabilities (e.g., the ability to control costs); or the personnel that make up the company.

Industry Review

In this section, you want to provide a fairly comprehensive overview of the industry. A thorough understanding of the industry that you will be operating in is essential to understand the possible returns that your company will earn within that industry. Investors want to know if they will recover their initial investment. When will they see a profit? Remember, investors often carefully track industries and are well aware of the strengths and limitations within a particular industry. Investors are looking for industries that can demonstrate growth. They also want to see if the industry is structurally attractive. This might entail conducting Porter’s five forces analysis; however, this is not required in all cases. If there appear to be some issues or problems with industry-level growth, then you might want to be able to identify some segments of the industry where growth is viable.

Products or Services

This section should be an in-depth discussion of what you are offering to customers. It should provide a complete and clear statement of the products or the services that you are offering. It should also discuss the core competencies of your business. You should highlight what is unique, such as a novel product or service concept or the possession of patents. You need to show how your product or service specifically meets particular market needs. You must identify how the product or the service will satisfy specific customers’ needs. If you are dealing with a new product or service, you need to demonstrate what previously unidentified needs it will meet and how it will do so. At its birth, Amazon had to demonstrate that an online bookstore would be preferable to the standard bookstore by offering the customer a much wider selection of books than would be available at an on-site location.

This section could include a discussion of technical issues. If the business is based on a technological innovation—such as a new type of software or an invention—then it is necessary to provide an adequate discussion of the specific nature of the technology. One should take care to always remember the audience for whom you are writing the plan. Do not make this portion too technical in nature. This section also might discuss the future direction of the product or service—namely, where will you be taking (changing) the product or the service after the end of the current planning horizon? This may require a discussion of future investment requirements or the required time to develop new products and services. This section may also include a discussion of pricing the product or the service, although a more detailed discussion of the issue of pricing might be found in the marketing plan section. If you plan to include the issue of pricing here, you should discuss how the pricing of the product or the service was determined. The more detailed you are in this description, the more realistic it will appear to the readers of the business plan. You may wish to discuss relationships that you have with vendors that might have an impact on reducing cost and therefore an impact on price. It is important to discuss how your pricing scheme will compare with competitors. Will it be higher than average or below the average price? How does the pricing fit in with the overall strategy of the firm?

This section must have a high degree of honesty. Investors will know much about the industry and its limitations. You need to identify any areas that might be possible sources of problems, such as government regulations, issues with new product development, securing distribution channels, and informing the market of your existence. Further, it is important to identify the current competitors in the industry and possible future competitors.

Marketing Plan

An introductory marketing course always introduces the four Ps: product, price, place, and promotion. The marketing section of the business plan might provide more in-depth coverage of how the product or the service better meets customer value than that of competitors. It should identify your target customers and include coverage of who your competitors are and what they provide. The comparison between your firm and its competitors should highlight differences and point to why you are providing superior value. Pricing issues, if not covered in the previous section, could be discussed or discussed in more detail.

The issue of location, particularly in retail, should be covered in detail. Perhaps one of the most important elements of the marketing plan section is to specify how you intend to attract customers, inform them of the benefits of using your product or service, and retain customers. Initially, customers are attracted through advertising. This section should delineate the advertising plan. What media will be used—flyers, newspapers, magazines, radio, television, web presence, direct marketing, and/or social media campaigns? This section should cover any promotional campaigns that might be used.

The Management Team

Physical resources are not the only determinant of business success. The human resources available to a firm will play a critical role in determining its success. Readers of your business plan and potential investors should have a clear sense of the management team that will be running a business. They should know the team with respect to the team’s knowledge of the business, their experience and capabilities, and their drive to succeed. Arthur Rock, a venture capitalist, was once quoted as saying, “I invest in people, not the idea.” [28]

This section of the business plan has several elements. It should contain an organizational chart that will delineate the responsibilities and the chain of command for the business. It should specify who will occupy each major position of the business. You might want to explain who is doing what job and why. For every member of the management team, you should have a complete résumé. This should include educational background (both formal and informal) and past work experience, including the jobs they have held, responsibilities, and accomplishments. You might want to include some other biographical data such as age, although that is not required.

If you plan to use specific advisers or consultants, you should mention the names and backgrounds of these people in this section of the plan. You should also specify why these people are being used.

An additional element of your discussion of the management team will be the intended compensation schemes. You should specify the intended salaries for the management team while also including issues of their benefits and bonuses or any stock position that they may take in the company. This section should also identify any gaps in the management team and how you intend to fill these positions.

Depending on the nature of the business, you might wish to include in this section the personnel (employees) that will be required. You should identify the number of people that are currently working for the firm or that will have to be hired; you should also identify the skills that they need to possess. Further discussion should include the pay that will be provided: whether they will be paid a flat salary or paid hourly, if and when you intend to use overtime, and what benefits you intend to provide. In addition, you should discuss any training requirements or training programs that you will have to implement.

Financial Statements

The financial statements section of the business plan should be broken down into three key subsections: the income statement, the balance sheet, and the cash-flow statement. Before proceeding with these sections, we discuss the assumptions used to build these sections. The opening section of the financial statements section should also include, in summary format, projections of sales, the sales growth rate, key expenses and their growth rates, net income across the forecasting horizon, and assets and liabilities. [29]

As previously discussed, bankers—and to lesser extent venture capitalists—will be primarily concerned with this section of the business plan. It is vital that this section—whether you are an existing business seeking more funding or a start-up—have realistic financial projections. The business plan should contain clear statements of the underlying assumptions that were used to make these financial projections. The clearer the statements and the more realistic the assumptions behind these statements, then the greater the confidence the reader will have in these projections. Few businesspeople have a thorough understanding of these financial statements; therefore, it is advisable that someone with an accounting or a financial background review these statements before they are included in the report. We will have a much more in-depth discussion of these statements in Chapter 9 .

The future planning horizon for financial projections is normally between three and five years. The duration that you will use will depend on the amount of capital that the business is seeking to raise, the type of industry the business is in, and the forecasting issues associated with making projections. Also, the detail required in these financial statements will be directly tied to the type and size of the business.

Income Statement

The  income statement examines the overall profitability of a firm over a particular period of time. As such, it is also known as a profit-and-loss statement. It identifies all sources of revenues generated and expenses incurred by the business. For the business plan, one should generate annual plans for the first three to five years. Some suggest that the planner develop more “granulated” income statements for the first two years. By granulated, we mean that the first year income statement should be broken down on a monthly basis, while the second year should be broken down on a quarterly basis.

Some of the key terms (they will be reviewed in much greater detail in Chapter 10 ) found in the income statement are as follows:

• Income. All revenues and additional incomes produced by the business during the designated period.
• Cost of goods sold. Costs associated with producing products, such as raw materials and costs associated directly with production.
• Gross profit margin. Income minus the cost of goods sold.
• Operating expenses. Costs in doing business, such as expenses associated with selling the product or the service, plus general administration expenses.
• Depreciation. This is a special form of expense that may be included in operating expenses. Long-term assets—those whose useful life is longer than one year—decline in value over time. Depreciation takes this fact into consideration. There are several ways in which this declining value can be determined. It is a noncash expenditure expense.
• Total expenses. The cost of goods sold plus operating expenses and depreciation.
• Net profit before interest and taxes. This is the gross profit minus operating expenses; another way of stating net profit is income minus total expenses.
• Interest. The required payment on all debt for the period.
• Taxes. Federal, state, and local tax payments for the firm.
• Net profit. This is the net profit after interest and taxes. This is the term that many will look at to determine the potential success of business operations.

Balance Sheet

The  balance sheet examines the assets and liabilities and owner’s equity of the business at some particular point in time. It is divided into two sections—the credit component (the assets of the business) and the debit component (liabilities and equity). These two components must equal each other. The business plan should have annual balance sheet for the three- or five-year planning horizon. The elements of the credit component are as follows:

• Current assets. These are the assets that will be held for less than one year, including cash, marketable securities, accounts receivable, notes receivable, inventory, and prepaid expenses.
• Fixed assets. These assets are not going to be turned into cash within the next year; these include plants, equipment, and land. It may also include intangible assets, such as patents, franchises, copyrights, and goodwill.
• Total assets. This is the sum of current assets and fixed assets.

Liabilities consist of the following:

• Current liabilities. These are debts that are to be paid within the year, such as lines of credit, accounts payable, other items payable (including taxes, wages, and rents), short-term loans, dividends payable, and current portion of long-term debt.
• Long-term liabilities. These are debts payable over a period greater than one year, such as notes payable, long-term debt, pension fund liability, and long-term lease obligations.
• Total liabilities. This is the sum of current liabilities and long-term liabilities.
• Owner’s equity. This represents the value of the shareholders’ ownership in the business. It is sometimes referred to as net worth. It may be composed of items such as preferred stock, common stock, and retained earnings.

Cash-Flow Statement

From a practical and survival standpoint, the  cash-flow statement may be the most important component of the financial statements. The cash-flow statement maps out where cash is flowing into the firm and where it flows out. It recognizes that there may be a significant difference between profits and cash flow. It will indicate if a business can generate enough cash to continue operations, whether it has sufficient cash for new investments, and whether it can pay its obligations. Businesspeople soon realize that profits are nice, but cash is king.

Cash flows can be divided into three areas of analysis: cash flow from operations, cash flow from investing, and cash flow from financing. Cash flow from operations examines the cash inflows from revenues and interest and dividends from investments held by the business. It then identifies the cash outflows for paying suppliers, employees, taxes, and other expenses. Cash flow from investing examines the impact of selling or acquiring current and fixed assets. Cash flow from financing examines the impact on the cash position from the changes in the number of shares and changes in the short- and long-term debt position of the firm. Given the critical importance of cash flow to the survival of the small business, it will be covered in much more detail in Chapter 10 .

Additional Information

Depending on the nature of the business and the amount of funding that is being sought, the plan might include more materials. For an existing business, you may wish to include past tax statements and/or personal financial statements. If the business is a franchise, you should include all legal contracts and documents. The same should be done for any leasing, licensing, or rent agreements. This section should be seen as a catchall incorporating any materials that would support the plan. One does not want to be in the position of being asked by readers of the plan—“Where are these documents?”

The financial section of the business plan should include summaries of the three key financial elements. The details behind the financial statements should be included as an appendix along with clear statements concerning the assumptions that were used to build them. The appendixes may also include different scenarios that were considered in building the plan, such as alternative market growth assumptions or alternative competitive environments. Demonstrating that the author(s) considered “what-if” situations tells potential investors that the business is prepared to handle changing conditions. It should include items such as logos, diagrams, ads, and organizational charts.

Developing Scenarios

Business plans are analyses of the future; they can err on the side of either optimistic projections or conservative projections. From the standpoint of the potential investor, it is always better to err on the side of conservatism. Regardless of either bias, business plans are generally built on the basis of expected futures and past experience. Unfortunately, the future does not always emerge in a clearly predicated manner. One can have a dramatic change that can have significant impact on the business. Often such changes occur in the external environment and are beyond the control of the business management team. These external changes can occur within the technical environment; it can be based on changes in customer needs, changes with respect to the suppliers, changes in the economic environment—at the local, national, or global level. Dramatic change can also occur within the organization itself—the death of the owner or members of the management team. [30]

One way for an organization to deal with significant changes is a process known as scenario planning . The real origins of scenario planning can be traced back to the early nineteenth century activity known as Kreigsspiel—war gaming—a system for training officers developed by the Prussian command. This process of looking at future wars was adopted by many militaries in the later nineteenth century. In the 1950s, a more formal format was used at the RAND Institute for examining possible future changes in the military and geopolitical environments. The early 1980s saw it applied to industrial settings. Royal Dutch Shell examined the question of what would happen if there were a significant drop in the price of oil. This was after two oil crises that pushed the price of oil up significantly. The notion that oil prices would drop was considered to be an extremely unlikely event, but it did occur. Royal Dutch Shell was one of the few oil companies that did not suffer because its scenario analyses enabled them to be ready to deal with that situation. [31]

What could be the possible use of scenario planning for small businesses? There are several areas in which small businesses should apply scenario planning to be better prepared for future disruptions.

Identify Significant Changes That Might Impact the Business

Consider major shifts in the customer’s notion of value. As mentioned in Chapter 2 , the firm should always be examining what constitutes value in the eyes of the consumer and how that might shift. Henry Ford’s model T car was a global success because customers initially valued a reliable vehicle at a low price. Ford Motor Company continued to meet the customer’s notion of value by constantly driving down the unit cost. However, by the mid-1920s, customers’ notion of value included not only price but also issues such as styling and improved technologies. General Motors was able to recognize that there were changes in the customer’s value notion and provided them with a range of vehicles. Ford failed to recognize that change and suffered a significant drop in sales.

Shifts in the economic environment. The recent recession clearly indicates that economies can suffer significant shifts in a short period of time. These shifts can have dramatic impact on all business operations. Small-business owners have seen significant tightening of bank credit and changes with respect to the requirements for using credit cards. One could easily imagine the critical importance for small businesses to consider the impacts that would follow significant changes in interest rates. Southwest Airlines, in anticipation of possible fluctuations in oil prices, used futures contracts to deal with dramatic shifts in the price of oil. When oil prices rose significantly, they were in a much better position than their competitors.

The entrance of new competitors. Small businesses should always be ready to consider the impact of facing new competitors and new types of competition. Consider the case of small local retail outlets when a Walmart superstore opens in the area.

Consideration of Disasters

The best way to deal with any potential disaster is not while it is occurring or after it has happened but before it occurs. Small businesses should anticipate what they will do in the case of physical disasters, such as fire, earthquakes, or floods. Other disasters might involve the bankruptcy or loss of a major supplier or a major customer. A restaurant or a food market should have a contingency plan in the case of a power failure that might lead to food spoilage. Such a business might also want to conduct a scenario planning exercise to see what its responses would be in the case of a customer complaining of food poisoning. Other disaster scenarios that should be considered by small businesses include the impact and ramifications of having the computer system crash; having the service for the website crash; or having the website hacked, with the possible loss of customer information.

New Opportunities

Almost all businesses, large and small, must be prepared to seize new opportunities. This may mean that they have to consider the impact of technological change on the business or how technology can offer them new business opportunities. The technology of stereo lithography, a process by which three-dimensional objects are built layer by layer, has been available for more than a decade. Bespoke Innovations saw the potential for using this technology. Bespoke Innovations can develop, in a short period of time, custom artificial legs for a price of $5,000–$6,000 and with features that are not found in $60,000 prostheses. [32]

Scenario planning should be a periodic exercise, but it should be conducted no more than once a year. The actual frequency might be dependent on the perceived rate of change for the industry or the presence of storm clouds on the horizon. Scenario planning has several distinct activities, which may be as follows:

• Pick one area that might occur in the future that would have significant impact on the business. What if the national joblessness rate remains at over 9 percent for the next three to five years? What if a major customer decides to buy from a competitor or that customer is in financial trouble? What if there are changes in the national defense budget? A luncheonette in New London, Connecticut, where Electric Boat builds nuclear submarines, wants to consider the impact of changes in the defense budget. A decrease in the budget for building nuclear submarines would reduce the number of subs made in New London, which might lead to layoffs at Electric Boat and fewer customers for the luncheonette.
• Identify factors that might impact that issue. This sometimes is referred to as a PEST analysis, where the P stands for political issues, E stands for economic issues, S stands for sociocultural issues, and T stands for technology issues. Each factor would be analyzed to see how it might impact the scenario. In our previous luncheonette example, the restaurant might want to consider an upcoming election to see how each party would support defense appropriations, and it might look at the overall economy to determine whether a downturn in the economy might lead to a cut in defense appropriations. It is unlikely that sociocultural issues would impact defense appropriations. Technology issues, whether a breakthrough in some design by the United States or by some other country, might determine the number and location of submarines built in the United States.
• Rank the relative importance of the previous factors. Not all factors under consideration can be considered equally important. It is critical in a scenario planning exercise to see which factors are most important so that decision-makers can focus on the ramifications of those factors in the analysis.
• Develop scenarios. Having identified the relative importance of the factors, the next stage would be to develop a limited number of possible scenarios (no more than two or three). Each scenario would map out possible outcomes for each key factor. Based on these values, the group conducting the scenario planning exercise would develop insights into this possible future world.
• How do the scenarios impact your business? For each future scenario, the team should examine how that possible future state would impact the operation of the business. Continuing with the luncheonette example, the owner might see that a particular political party would be elected in the next election and the economy will still be in the doldrums. Together, this might indicate a cut in the naval building budget. This will translate into a reduced number of submarines built in New London and a reduction in employment at Electric Boat. The luncheonette’s sales will obviously drop off. Now the owner must consider what it might do in that situation.

Scenario planning offers the opportunity for small business owners to examine the future on a long-term basis. It should force them to look at external environments and conditions that can have a dramatic impact on the survival of their firm. It broadens their thinking and creates an environment of increased flexibility. It enables a business to respond to those sudden shocks that might destroy other firms.

Computer Aids

Business plans can be built using a combination of word-processing and spreadsheet programs by those who are adept at using them. However, the entire process of constructing a comprehensive business plan can be greatly simplified by using a dedicated business plan software package. These packages are designed to produce reports that have all the required sections for a business plan, they greatly facilitate the creation of the financial statements with charts, and they often allow for the inclusion of materials from other programs. Most of them are fairly reasonably priced from $50 to $150.

There are many such packages on the market, and they range from those designed for novices to those that can generate annual plans by easily incorporating data from external sources, such as the accounting programs of a business. When evaluating competing programs, there are some primary and secondary factors that should be considered. [33] The primary factors are as follows:

• Ease of building the report. The various sections of the report should be clearly identified, and the authors should be able to work on each section independent of their sequence within the report. Text and data entry should be simple and allow for easy corrections or revisions.
• Financial statements. The software should facilitate building the income statement, the balance sheet, and the cash-flow statement. For multiyear projections, the software should support the forecasting process.
• Import from other programs. The software should be able to incorporate data from a variety of programs, such as Word and Excel. Ideally, it should be able to import data from a variety of accounting programs.
• Support services. The software company should bundle a variety of support services, including clear instructions, tutorials, and access to Internet or call-number support. Many packages provide sample business plans for different industries.

The secondary factors are as follows:

• Access to research support. Some software packages include access to business publications and databases to aid with market research.
• Export options. These packages allow for the report or parts of the report to be exported to different formats—Word, Excel, PowerPoint, HTML, or PDF.
• Ancillary analysis tools. Some packages either directly include or offer additional programs for market planning, budgeting, or valuation.

The following is a partial listing of companies that have business planning software:

• Business Plan Pro . This company provides business planning software with sample plans for a wide number of industries plus options for acquiring industry data at national, state, or local levels. The company also has programs for marketing planning and legal issues advice.
• Business Plan Software . This company offers a number of products, including business planning software, a strategic planning program, financial projection and cash-flow forecasting programs, and marketing planning software.
• Plan Magic . This company offers a suite of planning products ranging from particular industries to financial and marketing planning software.
• The business planning for a start-up business should consider if the owner(s) is/are ready to accept the challenges of operating a business.
• Comprehensive business plans will require information about the industry, competitors, and customers. Owners or the writers of the business plan should be aware of where they can obtain this information.
• Forecasting is critical to the success of any business. There are many different approaches to forecasting: some are simple extrapolations of trends, while others can be computationally complex. The business should use a forecasting system that is not only accurate but also makes the users feel comfortable.
• Although business plans come in different “sizes and shapes,” they should have some key sections: executive summary, mission statement, industry analysis, marketing plan, description of the management team, and financial projections.
• Some businesses should make it a practice of conducting scenario analyses. This is a process of examining possible future events and what should be the response of the business.
• The complexity and difficulty of building a comprehensive business plan can be significantly reduced by using one of the available business-planning software packages.
• Kenneth Arrow, The Concept of Corporate Strategy (Homewood, IL: Irwin, 1971), 28. ↵
• Alfred Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962), 13. ↵
• Kenichi Ohmae, The Mind of the Strategist (Harmondsworth, UK: Penguin Books, 1983), 6. ↵
• Henry Mintzberg, Joseph Lampel, and Bruce Ahlstrand, Strategic Safari: A Guided Tour through the Wilds of Strategic Management (New York: Free Press, 1998). ↵
• Paul Solman and Thomas Friedman, Life and Death on the Corporate Battlefield: How Companies Win, Lose, Survive (New York: Simon and Schuster, 1982), 24–27. ↵
• Stephen C. Perry, “A Comparison of Failed and Non-Failed Small Businesses in the United States: Do Men and Women Use Different Planning and Decision Making Strategies?,” Journal of Developmental Entrepreneurship 7, no. 4 (2002): 415. ↵
• Stephen C. Perry, “An Exploratory Study of U.S. Business Failures and the Influence of Relevant Experience and Planning,” (Ph.D. diss., George Washington University, 1998; dissertation available through UMI Dissertation Services, Ann Arbor, MI), 42. ↵
• David A. Curtis, Strategic Planning for Smaller Businesses: Improving Corporate Performance and Personal Reward (Cambridge, MA: Lexington Books, 1983), 29. ↵
• Henry Mintzberg, The Rise and Fall of Strategic Planning (New York: Free Press, 1994), 46. ↵
• Rieva Lesonsky, “A Small Business Plan Doubles Your Chances for Success, Says a New Survey, Small Business Trends, June 20, 2010, accessed October 10, 2011, smallbiztrends.com/2010/06/business-plan-success-twice-as-likely.html. ↵
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• Max and Mina’s Ice Cream, accessed October 10, 2011, www.maxandminasicecream.com. ↵
• Jason Cohen, “Don’t Write a Business Plan,” Building43, January 27, 2010, accessed October 10, 2011, www.building43.com/blogs/2010/01/27/dont-write-a -business-plan. ↵
• T. C. Carbone, “Four Common Management Failures and How to Avoid Them,” Management World 10, no. 8 (1981): 38. Patricia Schaeffer, “The Seven Pitfalls of Business Failure and How to Avoid Them,” Business Know-How, 2011, accessed October 10, 2011, www.businessknowhow.com/startup/business-failure.htm. Isabel M. Isodoro, “10 Rules for Small Business Success,” PowerHomeBiz.com , 2011, www.powerhomebiz.com/vol19/rules.htm . Rubik Atamian and Neal R. VanZante, “Continuing Education: A Vital Ingredient of the ‘Success Plan’ for Small Business,” Journal of Business and Economic Research 8, no. 3 (2010): 37. ↵
• Rieva Lesonsky, “A Small Business Plan Doubles Your Chances for Success, Says a New Survey,” Small Business Trends, June 20, 2010, accessed October 10, 2011, smallbiztrends.com/2010/06/business-plan-success-twice-as-likely.html. ↵
• H. Hodges and T. Kent, “Impact of Planning and Control Sophistication in Small Business,” Journal of Small Business Strategy 17, no. 2 (2006–7): 75. ↵
• Tim Berry, “What Bankers Look for in a Business Plan…and What You Should Expect When Taking Your Business Plan to a Bank,” AllBusiness.com, November 7, 2006, accessed October 10, 2011, www.allbusiness.com/business-planning-structures/business-plans/3878953-1.html. ↵
• Marc Mays, “Small Business Venture Capital Strategies,” eZine Articles, 2010, accessed October 10, 2011, ezinearticles.com/?Small-Business-Venture-Capital-Strategies &id=4714691. ↵
• “The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures,” Small Business Notes, September 2008, accessed October 10, 2011, www.smallbusinessnotes.com/aboutsb/rs331.html. ↵
• Melinda Emerson, “Life Plan before Business Plan,” Small Business Trends, March 22, 2010, accessed October 10, 2011, smallbiztrends.com/2010/03/life-plan -before-business-plan.html. ↵
• Jeffry Timmons, Andrew Zachary, and Stephen Spinelli, Business Plans That Work—A Guide for Small Business (New York: McGraw-Hill, 2004), 113. ↵
• Carolyn Brown, “The Dos and Don’ts of Writing a Winning Business Plan,” Black Enterprise, April 1996, 114–122. ↵
• “Inc. 500 Mission Statements,” MissionStatements.com, accessed October 10, 2011, www.missionstatements.com/inc_500_mission_statements.html. ↵
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• Ashlee Vance, “A Technology Sets Inventors Free to Dream,” New York Times, September 14, 2010. ↵
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The path by which a firm seeks to provide its customers with value, given the competitive environment and within the constraints of the resources available to the firm.

A firm is in the position of being the lowest cost producer in its competitive environment.

A firm provides products or services that meet customer value in some unique way.

A firm seeks to provide value through low cost for a subset of the market given the competitive environment and within the constraints of the resources available to the firm.

A firm concentrates on providing a unique product or service to a segment of the market.

Individuals who provide money for start-up businesses or additional capital for a business to grow. They invest to make not only a profit but also returns that are substantially above those found in the market.

Individuals who initially invested in Broadway shows and films. As with venture capitalists, they are looking for returns higher than they can normally find in the market; however, they often are expecting returns lower than those anticipated by the venture capitalist.

Methods that assume that one does not have historical data or cannot rely on past historical data.

Methods that consist of techniques that assume you can use past data to make projections of the future.

The introduction to the business plan that describes the company’s business, the intended customers, the legal structure, the type and amount of funding that will requested, and the capabilities of the key executives.

A document that articulates the long-term purpose and idealized notion of what the business wishes to become.

A document that articulates the fundamental nature of the business. It should address what business the company is in, the company’s potential customers, and how customer value will be provided.

A report that provides an examination of the overall profitability of a firm over a particular period of time.

A report that examines the assets, liabilities, and owner’s equity of the business at some particular point in time.

A document that maps out where cash is flowing into a firm and where it flows out. It recognizes that there may be a significant difference between profits and cash flow.

A process that examines the impact and possible responses to events that may be unlikely but that would have significant impact on a business.

Small Business Management Copyright © by Jason Anderson is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Business Plan Development Guide

(6 reviews)

Lee Swanson, University of Saskatchewan

Copyright Year: 2017

Publisher: OPENPRESS.USASK.CA

Language: English

Formats Available

Conditions of use.

Learn more about reviews.

Reviewed by Kevin Heupel, Affiliate Faculty, Metropolitan State University of Denver on 3/4/20

The text does a good job of providing a general outline about writing and developing a written business plan. All of the important steps and components are included. However, the text is light on details, examples, and rationale for each element... read more

Comprehensiveness rating: 3 see less

The text does a good job of providing a general outline about writing and developing a written business plan. All of the important steps and components are included. However, the text is light on details, examples, and rationale for each element of the business plan. Some examples from actual business plans would be helpful.

Content Accuracy rating: 4

For the most part, the content is accurate. The content covers all important aspects of drafting a business plan. I thought the industry analysis could use more information about collecting primary and secondary sources; instead, this information was referenced in the marketing plan section.

Relevance/Longevity rating: 5

Most of the content relies on cites as far back as 2006; however, when it comes to developing and writing a business plan nothing has changed. Thus, the content is current and there is no concern about it becoming obsolete in the near future.

Clarity rating: 4

The text is clear. There are no difficult terms used and the writing is simple. The text uses a lot of bullet points though, which gets tedious to read for a few pages.

Consistency rating: 5

The text does a good job of maintaining consistency in terms of framework and terminology. The text is organized where it's easy to find the information you want in a quick manner.

Modularity rating: 3

The text has a lot of bullet points and the paragraphs are dense. However, the use of subheading is excellent.

Organization/Structure/Flow rating: 5

The book is organized as if you're writing a business plan from start to finish, which is helpful as a practical guide.

Interface rating: 5

There are no navigation problems, distortion of images/charts, or any other display features that may distract or confuse the reader.

Grammatical Errors rating: 5

The text is free of grammatical errors. The sentence structure is simple with many bullet points, which helps to avoid any grammatical issues.

Cultural Relevance rating: 5

This book was written by a Canadian professor and provides references to Canadian sources. However, the information in this text can be used for U.S. schools.

This book is very short and provides a good, general overview about the process of creating and writing a business plan. It won't help a reader if he/she is confused about a certain part of the business plan. The reader will have to find another source, such as "Preparing Effective Business Plans" by Bruce Barringer, Ph.D. The book provides links to good resources and a finished business plan that the reader can reference. I would recommend the book for undergraduate courses.

Reviewed by Kenneth Lacho, Professor of Management, The University of New Orleans on 6/19/18

1. Text is relevant to Canada. Not the United States 2. Needs to cover resources available to entrepreneur, e.g., federal government agencies, trade associations, chambers of commerce, economic development agencies. 3. Discuss local economy or... read more

1. Text is relevant to Canada. Not the United States 2. Needs to cover resources available to entrepreneur, e.g., federal government agencies, trade associations, chambers of commerce, economic development agencies. 3. Discuss local economy or economic area relevant to this proposed business. 4. Business model ok as a guide. 5. Suggested mission statement to cover: product/business, target customer, geographical area covered. 6. Need detailed promotion plan, e.g., personal selling, advertising, sales promotion, networking publicity, and social media. 7. How do you find the target market? 8. Chapter 6 too much detail on debt and equity financing. 9. Discuss how to find sources of financing, e.g., angels. 10. Expand coverage of bootstring, crowdfunding. 11. Chapter 4 – good checklist. 12. Chapter 3 - overlaps. 13. Chapter 7 – 3 pages of executive summary – double or single spaced typing. Number all tables, graphs. 14. Some references out-of-date, mostly academic. Bring in trade magazines such as Entrepreneur.

Content Accuracy rating: 5

In my opinion, the content is accurate and error free.

Relevance/Longevity rating: 4

The material is relevant to writing a business plan. I wonder if the Porter, SWOT VRIO, etc. material is too high level for students who may not be seniors or have non-business degrees (e.g., liberal arts). Porter has been around for a while and does have longevity. The author has to be more alert to changes in promotion, e.g., social media and sources of financing, e.g., crowdfunding.

Clarity rating: 3

As noted in No. 9, the tone of the writing is too academic, thus making the material difficult to understand. Paragraphs are too long. Need to define: Porter, TOWS Matrix, VRIO, PESTEL. A student less from a senior or a non-business major would not be familiar with these terms.

Consistency rating: 4

The text is internally consistent. The model approach helps keep the process consistent.

Modularity rating: 4

The process of developing a business plan is divided into blocks which are parts of the business plan. Paragraphs tend to be too long in some spots.

Organization/Structure/Flow rating: 4

The topics are presented in a logical step-wise flow. The language style is too academic in parts, paragraphs too long. Leaves out the citations. Provides excellent check lists.

There are no display features which confuse the reader.

Grammatical Errors rating: 4

The text has no grammatical errors. On the other hand, I found the writing to be too academic in nature. Some paragraphs are too long. The material is more like an academic conference paper or journal submission. Academic citations references are not needed. The material is not exciting to read.

The text is culturally neutral. There are no examples which are inclusive of a variety of races, ethnicities, and backgrounds.

This book best for a graduate class.

Reviewed by Louis Bruneau, Part Time Faculty, Portland Community College on 6/19/18

The text provides appropriate discussion and illustration of all major concepts and useful references to source and resource materials. read more

Comprehensiveness rating: 5 see less

The text provides appropriate discussion and illustration of all major concepts and useful references to source and resource materials.

Contents of the book were accurate, although it could have benefited from editing/proofreading; there was no evidence of bias. As to editing/proofreading, a couple of examples: A. “Figure 1 – Business Plan… “ is shown at the top of the page following the diagram vs. the bottom of the page the diagram is on. (There are other problems with what is placed on each page.) B. First paragraph under heading “Essential Initial Research” there is reference to pages 21 to 30 though page numbering is missing from the book. (Page numbers are used in the Table of Contents.)

The book is current in that business planning has been stable for sometime. The references and resources will age in time, but are limited and look easy to update.

Clarity rating: 5

The book is written in a straightforward way, technical terms that needed explanations got them, jargon was avoided and generally it was an easy read.

The text is internally consistent in terms of terminology and framework.

Modularity rating: 5

The book lends itself to a multi-week course. A chapter could be presented and students could work on that stage of Plan development. It could also be pre-meeting reading for a workshop presentation. Reorganizing the book would be inappropriate.

The topics in the text are presented in a logical, clear fashion.

Generally, the book is free of interface problems. The financial tables in the Sample Plan were turned 90° to maintain legibility. One potential problem was with Figure 6 – Business Model Canvas. The print within the cells was too small to read; the author mitigated the problem by presenting the information, following Figure 6, in the type font of the text.

I found no grammatical errors.

The text is not culturally insensitive or offensive in any way.

I require a business plan in a course I teach; for most of the students the assignment is a course project that they do not intend to pursue in real life. I shared the book with five students that intended to develop an actual start-up business; three of them found it helpful while the other two decided not to do that much work on their plans. If I were planning a start-up, I would use/follow the book.

Reviewed by Todd Johnson, Faculty of Business, North Hennepin Community College on 5/21/18

The text is a thorough overview of all elements of a business plan. read more

Comprehensiveness rating: 4 see less

The text is a thorough overview of all elements of a business plan.

The content is accurate and seems to lack bias.

Content seems relevant and useful . It does not help an entrepreneur generate ideas, and is very light on crowdfunding and other novel funding source content. It is more traditional. This can be easily updated in future versions, however. "Social Media" appears once in the book, as does "Crowd Funding".

The book is comprehensive, but perhaps not written in the most lucid, accessible prose. I am not sure any college student could pick this up and just read and learn. It would be best used as a "teach along guide" for students to process with an instructor.

The text seems consistent. The author does a nice job of consistently staying on task and using bullets and brevity.

Here I am not so certain. The table of contents is not a good guide for this book. It does make the book look nicely laid out, but there is a lot of complexity within these sections. I read it uncertain that it was well organized. Yes there are many good bits of information, however it is not as if I could spend time on one swathe of text at a time. I would need to go back and forth throughout the text.

Organization/Structure/Flow rating: 2

Similar to the above. I did not like the flow and organization of this. An editor would help things be in a more logical order.

Interface rating: 2

The interface is just OK. It is not an attractice interface, as it presents text in a very dense manner. The images and charts are hard to follow.

I did not find any grammatical errors.

Cultural Relevance rating: 4

I a not certain of the origins of Saskatchewan, but I do feel this is a different read. It is more formal and dense than it has to be. This would be a difficult read for my students. I do not feel it is insensitive in any way, or offensive in any way.

I would not adopt this book if given the chance. It is too dense, and not organized very well, even though the information is very good. The density and lack of modularity are barriers to understanding what is obviously very good information.

Reviewed by Mariana Mitova, Lecturer, Bowling Green State University on 2/1/18

Though this textbook has a prescriptive nature, it is quite comprehensive. The author strikes a good balance between presenting concepts in a concise way and providing enough information to explain them. Many every-day examples and live links to... read more

Though this textbook has a prescriptive nature, it is quite comprehensive. The author strikes a good balance between presenting concepts in a concise way and providing enough information to explain them. Many every-day examples and live links to other resources add to the completeness of the textbook.

Content seems accurate.

Since the content is somewhat conceptual, the text will not become obsolete quickly. In addition, the author seems to be updating and editing content often hence the relevance to current developments is on target.

The text is very clear, written in clear and straight-to-the point language.

The organization of content is consistent throughout the entire text.

The textbook is organized by chapters, beginning with overview of the model used and followed by chapters for each concept within the model. Nicely done.

The flow is clear, logical and easy to follow.

Overall, images, links, and text are well organized. Some headlines were misaligned but still easy to follow.

No concerns for grammar.

No concerns for cultural irrelevance.

Reviewed by Darlene Weibye, Cosmetology Instructor, Minnesota State Community and Technical College on 2/1/18

The text is comprehensive and covers the information needed to develop a business plan. The book provides all the means necessary in business planning. read more

The text is comprehensive and covers the information needed to develop a business plan. The book provides all the means necessary in business planning.

The text was accurate, and error-free. I did not find the book to be biased.

The content is up-to-date. I am reviewing the book in 2017, the same year the book was published.

The content was very clear. A business plan sample included operation timelines, start up costs, and all relevant material in starting a business.

The book is very consistent and is well organized.

The book has a table of contents and is broken down into specific chapters. The chapters are not divided into sub topics. I do not feel it is necessary for sub topics because the chapters are brief and to the point.

There is a great flow from chapter to chapter. One topic clearly leads into the next without repeating.

The table of contents has direct links to each chapter. The appearance of the chapters are easy to read and the charts are very beneficial.

Does not appear to have any grammatical errors.

The text is not culturally insensitive or offensive.

I am incorporating some of the text into the salon business course. Very well written book.

Table of Contents

Introduction

• Chapter 1 – Developing a Business Plan
• Chapter 2 – Essential Initial Research
• Chapter 3 – Business Models
• Chapter 4 – Initial Business Plan Draft
• Chapter 5 – Making the Business Plan Realistic
• Chapter 6 – Making the Plan Appeal to Stakeholders and Desirable to the Entrepreneur
• Chapter 7 – Finishing the Business Plan
• Chapter 8 – Business Plan Pitches

References Appendix A – Business Plan Development Checklist and Project Planner Appendix B – Fashion Importers Inc. Business Plan Business Plan Excel Template

Ancillary Material

About the book.

This textbook and its accompanying spreadsheet templates were designed with and for students wanting a practical and easy-to-follow guide for developing a business plan. It follows a unique format that both explains what to do and demonstrates how to do it.

About the Contributors

Dr. Lee Swanson is an Associate Professor of Management and Marketing at the Edwards School of Business at the University of Saskatchewan. His research focuses on entrepreneurship, social entrepreneurship, Aboriginal entrepreneurship, community capacity-building through entrepreneurship, and institutional-stakeholder engagement. Dr. Swanson’s current research is funded through a Social Sciences Humanities Research Council grant and focuses on social and economic capacity building in Northern Saskatchewan and Northern Scandinavia. He is also actively studying Aboriginal community partnerships with resource based companies, entrepreneurship centres at universities, community-based entrepreneurship, and entrepreneurial attitudes and intentions. He teaches upper-year and MBA entrepreneurship classes and conducts seminars on business planning and business development.

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5.6 The Business Plan

Learning objective.

• Discuss the importance of planning for your business, and identify the key sections of a business plan.

If you want to start a business, you must prepare a business plan. This essential document should tell the story of your business concept, provide an overview of the industry in which you will operate, describe the goods or services you will provide, identify your customers and proposed marketing activities, explain the qualifications of your management team, and state your projected income and borrowing needs.

Purpose of a Business Plan

The business plan is a plan or blueprint for the company, and it’s an indispensable tool in attracting investors, obtaining loans, or both. Remember, too, that the value of your business plan isn’t limited to the planning stages of your business and the process of finding start-up money. Once you’ve acquired start-up capital, don’t just stuff your plan in a drawer. Treat it as an ongoing guide to your business and its operations, as well as a yardstick by which you can measure your performance. Keep it handy, update it periodically, and use it to assess your progress.

In developing and writing your business plan, you must make strategic decisions in the areas of management, operations, marketing, accounting, and finance—in short, in all the functional areas of business that we described in Chapter 1 “The Foundations of Business” . Granted, preparing a business plan takes a lot of time and work, but it’s well worth the effort. A business plan forces you to think critically about your proposed business and reduces your risk of failure. It forces you to analyze your business concept and the industry in which you’ll be operating, and it helps you determine how you can grab a percentage of sales in that industry.

The most common use of a business plan is persuading investors, lenders, or both, to provide financing. These two groups look for different things. Investors are particularly interested in the quality of your business concept and the ability of management to make your venture successful. Bankers and other lenders are primarily concerned with your company’s ability to generate cash to repay loans. To persuade investors and lenders to support your business, you need a professional, well-written business plan that paints a clear picture of your proposed business.

Sections of the Business Plan

Though formats can vary, a business plan generally includes the following sections: executive summary, description of proposed business, industry analysis, mission statement and core values, management plan, goods or services and (if applicable) production processes, marketing, global issues, and financial plan. Let’s explore each of these sections in more detail. ( Note : More detailed documents and an Excel template are available for those classes in which the optional business plan project is assigned.)

Executive Summary

The executive summary is a one- to three-page overview of the business plan. It’s actually the most important part of the business plan: it’s what the reader looks at first, and if it doesn’t capture the reader’s attention, it might be the only thing that he or she looks at. It should therefore emphasize the key points of the plan and get the reader excited about the prospects of the business.

Even though the executive summary is the first thing read, it’s written after the other sections of the plan are completed. An effective approach in writing the executive summary is to paraphrase key sentences from each section of the business plan. This process will ensure that the key information of each section is included in the executive summary.

Description of Proposed Business

Here, you present a brief description of the company and tell the reader why you’re starting your business, what benefits it provides, and why it will be successful. Some of the questions to answer in this section include the following:

• What will your proposed company do? Will it be a manufacturer, a retailer, or a service provider?
• What goods or services will it provide?
• Why are your goods or services unique?
• Who will be your main customers?
• How will your goods or services be sold?
• Where will your business be located?

Because later parts of the plan will provide more detailed discussions of many of these issues, this section should provide only an overview of these topics.

Industry Analysis

This section provides a brief introduction to the industry in which you propose to operate. It describes both the current situation and the future possibilities, and it addresses such questions as the following:

• How large is the industry? What are total sales for the industry, in volume and dollars?
• Is the industry mature or are new companies successfully entering it?
• What opportunities exist in the industry? What threats exist?
• What factors will influence future expansion or contraction of the industry?
• What is the overall outlook for the industry?
• Who are your major competitors in the industry?
• How does your product differ from those of your competitors?

Mission Statement and Core Values

This portion of the business plan states the company’s mission statement and core values . The mission statement describes the purpose or mission of your organization—its reason for existence. It tells the reader what the organization is committed to doing. For example, one mission statement reads, “The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit” (Southwest Airline’s, 2011).

Core values are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities. Core values are not about profits, but rather about ideals. They should help guide the behavior of individuals in the organization. Coca-Cola, for example, intends that its core values—leadership, passion, integrity, collaboration, diversity, quality, and accountability—will let employees know what behaviors are (and aren’t) acceptable (The Coca-Cola Company, 2011).

Management Plan

Management makes the key decisions for the business, such as its legal form and organizational structure. This section of the business plan should outline these decisions and provide information about the qualifications of the key management personnel.

A. Legal Form of Organization

This section dentifies the chosen legal form of business ownership: sole proprietorship (personal ownership), partnership (ownership shared with one or more partners), or corporation (ownership through shares of stock).

B. Qualifications of Management Team and Compensation Package

It isn’t enough merely to have a good business idea: you need a talented management team that can turn your concept into a profitable venture. This part of the management plan section provides information about the qualifications of each member of the management team. Its purpose is to convince the reader that the company will be run by experienced, well-qualified managers. It describes each individual’s education, experience, and expertise, as well as each person’s responsibilities. It also indicates the estimated annual salary to be paid to each member of the management team.

C. Organizational Structure

This section of the management plan describes the relationships among individuals within the company, listing the major responsibilities of each member of the management team.

Goods, Services, and the Production Process

To succeed in attracting investors and lenders, you must be able to describe your goods or services clearly (and enthusiastically). Here, you describe all the goods and services that you will provide the marketplace. This section explains why your proposed offerings are better than those of competitors and indicates what market needs will be met by your goods or services. In other words, it addresses a key question: What competitive advantage will the company’s goods and services have over similar products on the market?

This section also indicates how you plan to obtain or make your products. Naturally, the write-up will vary, depending on whether you’re proposing a service company, a retailer, or a manufacturer. If it’s a service company, describe the process by which you’ll deliver your services. If it’s a retail company, tell the reader where you’ll purchase products for resale.

If you’re going to be a manufacturer, you must furnish information on product design, development, and production processes. You must address questions such as the following:

• How will products be designed?
• What technology will be needed to design and manufacture products?
• Will the company run its own production facilities, or will its products be manufactured by someone else?
• Where will production facilities be located?
• What type of equipment will be used?
• What are the design and layout of the facilities?
• How many workers will be employed in the production process?
• How many units will be produced?
• How will the company ensure that products are of high quality?

This critical section focuses on four marketing-related areas—target market, pricing, distribution, and promotion:

• Target market . Describe future customers and profile them according to age, gender, income, interests, and so forth. If your company will sell to other companies, describe your typical business customer.
• Pricing . State the proposed price for each product. Compare your pricing strategy to that of competitors.
• Distribution . Explain how your goods or services will be distributed to customers. Indicate whether they’ll be sold directly to customers or through retail outlets.
• Promotion . Explain your promotion strategy, indicating what types of advertising you’ll be using.

In addition, if you intend to use the Internet to promote or sell your products, also provide answers to these questions:

• Will your company have a Web site? Who will visit the site?
• What will the site look like? What information will it supply?
• Will you sell products over the Internet?
• How will you attract customers to your site and entice them to buy from your company?

Global Issues

In this section, indicate whether you’ll be involved in international markets, by either buying or selling in other countries. If you’re going to operate across borders, identify the challenges that you’ll face in your global environment, and explain how you’ll meet them. If you don’t plan initially to be involved in international markets, state what strategies, if any, you’ll use to move into international markets when the time comes.

Financial Plan

In preparing the financial section of your business plan, specify the company’s cash needs and explain how you’ll be able to repay debt. This information is vital in obtaining financing. It reports the amount of cash needed by the company for start-up and initial operations and provides an overview of proposed funding sources. It presents financial projections, including expected sales, costs, and profits (or losses). It refers to a set of financial statements included in an appendix to the business plan.

Here, you furnish supplemental information that may be of interest to the reader. In addition to a set of financial statements, for example, you might attach the résumés of your management team.

Key Takeaways

• A business plan tells the story of your business concept, provides an overview of the industry in which you will operate, describes the goods or services you will provide, identifies your customers and proposed marketing activities, explains the qualifications of your management team, and states your projected income and borrowing needs.
• In your business plan, you make strategic decisions in the areas of management, operations, marketing, accounting, and finance. Developing your business plan forces you to analyze your business concept and the industry in which you’ll be operating. Its most common use is persuading investors and lenders to provide financing.

A business plan generally includes the following sections:

• Executive summary . One- to three-page overview.
• Description of proposed business . Brief description of the company that answers such questions as what your proposed company will do, what goods or services it will provide, and who its main customers will be.
• Industry analysis . Short introduction to the industry in which you propose to operate.
• Mission statement and core values . Declaration of your mission statement , which are fundamental beliefs about what’s important and what is (and isn’t) appropriate in conducting company activities.
• Management plan . Information about management team qualifications and responsibilities, and designation of your proposed legal form of organization.
• Goods, services, and the production process . Description of the goods and services that you’ll provide in the marketplace; explanation of how you plan to obtain or make your products or of the process by which you’ll deliver your services.
• Marketing . Description of your plans in four marketing-related areas: target market, pricing, distribution, and promotion.
• Global issues . Description of your involvement, if any, in international markets.
• Financial plan . Report on the cash you’ll need for start-up and initial operations, proposed funding sources, and means of repaying your debt.
• Appendices . Supplemental information that may be of interest to the reader.

(AACSB) Analysis

Let’s start with three givens: (1) college students love chocolate chip cookies, (2) you have a special talent for baking cookies, and (3) you’re always broke. Given these three conditions, you’ve come up with the idea of starting an on-campus business—selling chocolate chip cookies to fellow students. As a business major, you want to do things right by preparing a business plan. First, you identified a number of specifics about your proposed business. Now, you need to put these various pieces of information into the relevant section of your business plan. Using the business plan format described in this chapter, indicate the section of the business plan into which you’d put each of the following:

• You’ll bake the cookies in the kitchen of a friend’s apartment.
• You’ll charge $1 each or $10 a dozen.
• Your purpose is to make the best cookies on campus and deliver them fresh. You value integrity, consideration of others, and quality.
• Each cookie will have ten chocolate chips and will be superior to those sold in nearby bakeries and other stores.
• You expect sales of $6,000 for the first year.
• Chocolate chip cookies are irresistible to college students. There’s a lot of competition from local bakeries, but your cookies will be superior and popular with college students. You’ll make them close to campus using only fresh ingredients and sell them for $1 each. Your management team is excellent. You expect first-year sales of $6,000 and net income of $1,500. You estimate start-up costs at $600.
• You’ll place ads for your product in the college newspaper.
• You’ll hire a vice president at a salary of $100 a week.
• You can ship cookies anywhere in the United States and in Canada.
• You need $600 in cash to start the business.
• There are six bakeries within walking distance of the college.
• You’ll bake nothing but cookies and sell them to college students. You’ll make them in an apartment near campus and deliver them fresh.

The Coca-Cola Company, “Workplace Culture,” The Coca-Cola Company, http://www.thecoca-colacompany.com/citizenship/workplace_culture.html (accessed August 31, 2011).

Southwest Airline’s company Web site, about SWA section, http://www.southwest.com/about_swa/mission.html (accessed August 31, 2011).

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated July 29, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan

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	The business plan presents the entrepreneur's strategy for executing the business concept. It explains to lenders and investors why a new business deserves financial support. Business plans also serve as living guides to the business and as start-up blueprints. Business plans have common features, including management team plan, company description, product and service plan, mission and vision statements, industry overview, marketing analysis, competitive analysis, marketing plan, operational plan, organizational plan, financial plan, growth plan, contingency plan, executive summary, supporting documents, cover page, title page, and table of contents. There are many sources of information for entrepreneurs creating business plans. Fill out the reading organizer as you read the section.

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Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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Chapter 5 – Business Planning

Business planning is an important precursor to action in new ventures. By helping firm founders to make decisions, to balance resource supply and demand, and to turn abstract goals into concrete operational steps, business planning reduces the likelihood of venture disbanding and accelerates product development and venture organizing activity. – Delmar and Shane (2003, p. 1165) We always plan too much and always think too little. We resent a call to thinking and hate unfamiliar argument that does not tally with what we already believe or would like to believe. – Joseph Schumpeter Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. – Peter Drucker

Learning Objectives

After completing this chapter you will be able to

• Describe the purposes of business planning
• Describe common business planning principles
• List and explain the elements of the business plan development process outlined in this book
• Explain the purposes of each of the elements of the business plan development process outlined in this book
• Explain how applying the business plan development process outlined in this book can aid in developing a business plan that will meet entrepreneurs’ goals
• Describe general business planning guidelines and format

This chapter describes the purposes of business planning, the general concepts related to business planning, and guidelines and a format for a comprehensive business plan.

Business Planning Purposes

Business plans are developed for both internal and external purposes. Internally, entrepreneurs develop business plans to help put the pieces of their business together. The most common external purpose for a business plan is to raise capital.

Internal Purposes

• defines the vision for the company
• establishes the company’s strategy
• describes how the strategy will be implemented
• provides a framework for analysis of key issues
• provides a plan for the development of the business
• is a measurement and control tool
• helps the entrepreneur to be realistic and to put theories to the test

External Purposes

The business plan is often the main method of describing a company to external audiences such as potential sources for financing and key personnel being recruited. It should assist outside parties to understand the current status of the company, its opportunities, and its needs for resources such as capital and personnel. It also provides the most complete source of information for valuation of the business.

Business Planning Principles

Business plan communication principles.

As Hindle and Mainprize (2006) note, business plan writers must strive to communicate their expectations about the nature of an uncertain future. However, the liabilities of newness make communicating the expected future of new ventures difficult (more so than for existing businesses).  They outline five communications principles:

• Translation of your vision of the venture and how it will perform into a format compatible with the expectations of the readers
• you have identified and understood the key success factors and risks
• the projected market is large and you expect good market penetration
• you have a strategy for commercialization, profitability, and market domination
• you can establish and protect a proprietary and competitive position
• Anchoring key events in the plan with specific financial and quantitative values
• your major plan objectives are in the form of financial targets
• you have addressed the dual need for planning and flexibility
• you understand the hazards of neglecting linkages between certain events
• you understand the importance of quantitative values (rather than just chronological dates)
• Nothing lasts forever—things can change to impact the opportunity: tastes, preferences, technological innovation, competitive landscape
• the new combination upon which venture is built
• magnitude of the opportunity or market size
• market growth trends
• venture’s value from the market (% of market share proposed or market share value in dollars)
• Four key aspects describing context within which new venture is intended to function (internal and external environment)
• how the context will help or hinder the proposal
• how the context may change & affect the business & the range of flexibility or response that is built into the venture
• what management can or will do in the event the context turns unfavourable
• what management can do to affect the context in a positive way
• Brief and clear statement of how an idea actually becomes a business that creates value
• Who pays, how much, and how often?
• The activities the company must perform to produce its product, deliver it to its customers and earn revenue
• And be able to defend assertions that the venture is attractive and sustainable and has a competitive edge

Business Plan Credibility Principles

Business plan writers must strive to project credibility (Hindle & Mainprize, 2006), so t here must be a match between what the entrepreneurship team (resource seekers) needs and what the investors (resource providers) expect based on their criteria. A take it or leave it approach (i.e. financial forecasts set in concrete) by the entrepreneurship team has a high likelihood of failure in terms of securing resources. Hindle and Mainprize (2006) outline five principles to help entrepreneurs  project credibility:

• Without the right team, nothing else matters.
• What do they know?
• Who do they know?
• How well are they known?
• sub-strategies
• ad-hoc programs
• specific tactical action plans
• Claiming an insuperable lead or a proprietary market position is naïve.
• Anticipate several moves in advance
• View the future as a movie vs. snapshot
• Key assumptions related to market size, penetration rates, and timing issues of market context outlined in the business plan should link directly to the financial statements.
• Income and cash flow statements must be preceded by operational statements setting forth the primary planning assumptions about market sizes, sales, productivity, and basis for the revenue estimate.
• If the main purpose is to enact a harvest, then the business plan must create a value-adding deal structure to attract investors.
• Common things: viability, profit potential, downside risk, likely life-cycle time, potential areas for dispute or improvement

General Business Plan Guidelines

Many businesses must have a business plan to achieve their goals. The following are some basic guidelines for business plan development.

• A standard format helps the reader understand that the entrepreneur has thought everything through, and that the returns justify the risk.
• Binding the document ensures that readers can easily go through it without it falling apart.
• everything is completely integrated: the written part must say exactly the same thing as the financial part
• all financial statements are completely linked and valid (make sure all balance sheets validly balance)
• the document is well formatted (layout makes document easy to read and comprehend—including all diagrams, charts, statements, and other additions)
• everything is correct (there are NO spelling, grammar, sentence structure, referencing, or calculation errors)
• It is usually unnecessary—and even damaging—to state the same thing more than once. To avoid unnecessarily duplicating information, you should combine sections and reduce or eliminate duplication as much as possible.
• all the necessary information is included to enable readers to understand everything in your document
• For example, if your plan says something like “there is a shortage of 100,000 units with competitors currently producing 25,000. We can help fill this huge gap in demand with our capacity to produce 5,000 units,” a reader is left completely confused. Does this mean there is a total shortage of 100,000 units, but competitors are filling this gap by producing 25,000 per year (in which case there will only be a shortage for four years)? Or, is there an annual shortage of 100,000 units with only 25,000 being produced each year, in which case the total shortage is very high and is growing each year? You must always provide the complete perspective by indicating the appropriate time frame, currency, size, or another measurement.
• if you use a percentage figure, you indicate to what it refers, otherwise the figure is completely useless to a reader.
• This can be solved by indicating up-front in the document the currency in which all values will be quoted. Another option is to indicate each time which currency is being used, and sometimes you might want to indicate the value in more than one currency. Of course, you will need to assess the exchange rate risk to which you will be exposed and describe this in your document.
• If a statement is included that presents something as a fact when this fact is not generally known, always indicate the source. Unsupported statements damage credibility
• Be specific. A business plan is simply not of value if it uses vague references to high demand, carefully set prices, and other weak phrasing. It must show hard numbers (properly referenced, of course), actual prices, and real data acquired through proper research. This is the only way to ensure your plan is considered credible.

Developing a High Power Business Plan

The business plan development process described next has been extensively tested with entrepreneurship students and has proven to provide the guidance entrepreneurs need to develop a business plan appropriate for their needs; a high power business plan .

The Stages of Development

There are six stages involved with developing a high power business plan . These stages can be compared to a process for hosting a dinner for a few friends. A host hoping to make a good impression with their anticipated guests might analyze the situation at multiple levels to collect data on new alternatives for healthy ingredients, what ingredients have the best prices and are most readily available at certain times of year, the new trends in party appetizers, what food allergies the expected guests might have, possible party themes to consider, and so on. This analysis is the  Essential Initial Research stage.

In the Business Model stage, the host might construct a menu of items to include with the meal along with a list of decorations to order, music to play, and costume themes to suggest to the guests. The mix of these kinds of elements chosen by the host will play a role in the success of the party.

The Initial Business Plan Draft stage is where the host rolls up his or her sleeves and begins to assemble make some of the food items, put up some of the decorations, send invitations, and generally get everything started for the party.

During this stage, the host will begin to realize that some plans are not feasible and that changes are needed. The required changes might be substantial, like the need to postpone the entire party and ultimately start over in a few months, or less drastic, like the need to change the menu when an invited guest indicates that they can’t eat food containing gluten. These changes are incorporated into the plan to make it realistic and feasible in the  Making the Business Plan Realistic stage.

Making A Plan to Appeal to Stakeholders stage involves further changes to the party plan to make it more appealing to both the invited guests and to make it a fun experience for the host. For example, the host might learn that some of the single guests would like to bring dates and others might need to be able to bring their children to be able to attend. The host might be able to accommodate those desires or needs in ways that will also make the party more fun for them—maybe by accepting some guests’ offers to bring food or games, or maybe even hiring a babysitter to entertain and look after the children.

The final stage— Finishing the Business Plan— involves the host putting all of the final touches in place for the party in preparation for the arrival of the guests.

Figure 5 – Business Plan Development Process (Illustration by Lee A. Swanson)

Essential Initial Research

A business plan writer should analyze the environment in which they anticipate operating at each of the s ocietal , i ndustry , m arket , and f irm  levels of analysis  (see pages 51–60). This stage of planning, the e ssential initial research , is a necessary first step to better understand the trends that will affect their business and the decisions they must make to lay the groundwork for, and to improve their potential for success.

In some cases, much of the  e ssential initial research should be included in the developing business plan as its own separate section to help build the case for readers that there is a market need for the business being considered and that it stands a good chance of being successful.

In other cases, a business plan will be stronger when the components of the e ssential initial research are distributed throughout the business plan as a way to provide support for the plans and strategies outlined in the business plan. For example, the industry or market part of the  e ssential initial research might outline the pricing strategies used by identified competitors and might be best placed in the pricing strategy part of the business plan to support the decision made to employ a particular pricing strategy.

Business Model

Inherent in any business plan is a description of the business model chosen by the entrepreneur as the one that they feel will best ensure success. Based upon their essential initial research of the setting in which they anticipate starting their business (their analysis from stage one) an entrepreneur should determine how each element of their business model—including their revenue streams, cost structure, customer segments, value propositions, key activities, key partners, and so on—might fit together to improve the potential success of their business venture (see Chapter 4 – Business Models ).

For some types of ventures, at this stage an entrepreneur might launch a lean start-up (see page 68) and grow their business by continually pivoting, or constantly adjusting their business model in response to the real-time signals they get from the markets’ reactions to their business operations. In many cases, however, an entrepreneur will require a business plan. In those cases, their initial business model will provide the basis for that plan.

Of course, throughout this and all of the rounds in this process, the entrepreneur should seek to continually gather information and adjust the plans in response to the new knowledge they gather. As shown in Figure 8 by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the business model and moving on to the initial business plan draft.

Initial Business Plan Draft

The Business Plan Draft stage involves taking the knowledge and ideas developed during the first two stages and organizing them into a business plan format. An approach preferred by many is to create a full draft of the business plan with all of the sections, including the front part with the business description, vision, mission, values, value proposition statement, preliminary set of goals, and possibly even a table of contents and lists of tables and figures all set up using the software features enabling their automatic generation. Writing all of the operations, human resources, marketing, and financial plans as part of the first draft ensures that all of these parts can be appropriately and necessarily integrated. The business plan will tell the story of a planned business startup in two ways by using primarily words along with some charts and graphs in the operations, human resources, and marketing plans and in a second way through the financial plan. Both ways must tell the same story.

The feedback loop shown in Figure 8 demonstrates that the business developer may need to review the business model.  Additionally, as shown by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the Initial Business Plan Draft stage and moving on to the Making Business Plan Realisticstage.

Making Business Plan Realistic

The first draft of a business plan will almost never be realistic. As the entrepreneur writes the plan, it will necessarily change as new information is gathered. Another factor that usually renders the first draft unrealistic is the difficulty in making certain that the written part—in the front part of the plan along with the operations, human resources, and marketing plans—tells the exact same story as the financial part does. This stage of work involves making the necessary adjustments to the plan to make it as realistic as possible.

The Making Business Plan Realistic stage has two possible feedback loops. The first goes back to the Initial Business Plan Draft stage in case the initial business plan needs to be significantly changed before it is possible to adjust it so that it is realistic. The second feedback loop circles back to the Business Model stage if the business developer need to rethink the business model. As shown in Figure 8 by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the Making Business Plan Realistic stage and moving on to the Making Plan Appeal to Stakeholders stage.

Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur

A business plan can be realistic without appealing to potential investors and other external stakeholders, like employees, suppliers, and needed business partners. It might also be realistic (and possibly appealing to stakeholders) without being desirable to the entrepreneur. During this stage the entrepreneur will keep the business plan realistic as they adjust plans to appeal to potential investors and to themselves.

If, for example, investors will be required to finance the business start, some adjustments might need to be relatively extensive to appeal to potential investors’ needs for an exit strategy from the business, to accommodate the rate of return they expect from their investments, and to convince them that the entrepreneur can accomplish all that is promised in the plan. In this case, and in others, the entrepreneur will also need to get what they want out of the business to make it worthwhile for them to start and run it. So, this stage of adjustments to the developing business plan might be fairly extensive, and they must be informed by a superior knowledge of what targeted investors need from a business proposal before they will invest. They also need to be informed by a clear set of goals that will make the venture worthwhile for the entrepreneur to pursue.

The caution with this stage is to balance the need to make realistic plans with the desire to meet the entrepreneur’s goals while avoiding becoming discouraged enough to drop the idea of pursuing the business idea. If an entrepreneur is convinced that the proposed venture will satisfy a valid market need, there is often a way to assemble the financing required to start and operate the business while also meeting the entrepreneur’s most important goals. To do so, however, might require significant changes to the business model.

One of the feedback loops shown in Figure 8 indicates that the business plan writer might need to adjust the draft business plan while ensuring that it is still realistic before it can be made appealing to the targeted stakeholders and desirable to the entrepreneur. The second feedback loop indicates that it might be necessary to go all the way back to the Business Model stage to re-establish the framework and plans needed to develop a realistic, appealing, and desirable business plan. Additionally, this stage’s enclosure in the progressive research box suggests that the business plan developer might need conduct further research.

Finishing the Business Plan

The final stage involves putting all of the important finishing touches on the business plan so that it will present well to potential investors and others. This involves making sure that the math and links between the written and financial parts are accurate. It also involves ensuring that all the needed corrections are made to the spelling, grammar, and formatting. The final set of goals should be written to appeal to the target readers and to reflect what the business plan says. An executive summary should be written and included as a final step.

General Business Plan Format

Include nice, catchy, professional, appropriate graphics to make it appealing for targeted readers

Executive summary

• Can be longer than normal executive summaries, up to three pages
• Write after remainder of plan is complete
• Includes information relevant to targeted readers as this is the place where they are most likely to form their first impressions of the business idea and decide whether they wish to read the rest of the plan

Table of Con t ents

List of tables.

Each table, figure, and appendix included in the plan must be referenced within the text of the plan so the relevance of each of these elements is clear.

List of Figures

Introduction.

• Describes the business concept
• Indicates the purpose of the plan
• Appeals to targeted readers

Business Idea

• May include description of history behind the idea and the evolution of the business concept if relevant
• Generally outlines what the owner intends for the venture to be
• Should inspire all members of the organization
• Should help stakeholders aspire to achieve greater things through the venture because of the general direction provided through the vision statement
• Should be very brief—a few sentences or a short paragraph
• Indicates what your organization does and why it exists—may describe the business strategy and philosophy
• Indicates the important values that will guide everything the business will do
• Outlines the personal commitments members of the organization must make, and what they should consider to be important
• Defines how people behave and interact with each other.
• Should help the reader understand the type of culture and operating environment this business intends to develop

Major Goals

• Describes the major organizational goals
• Specific, Measurable, Action-Oriented, Realistic, and Timely [SMART]
• Realistic, Understandable, Measurable, Believable, and Achievable [RUMBA]
• Perfectly aligns with everything in plan

Operating Environment

Trend analysis.

• Consider whether this is the right place for this analysis: it may be better positioned in, for example, the Financial Plan section to provide context to the analysis of the critical success factors, or in the Marketing Plan to help the reader understand the basis for the sales projections.

Industry Analysis

• Includes an analysis of the industry in which this business will operate
• consider whether this is the right place for this analysis: it may be better placed in, for example, the Marketing Plan to enhance the competitor analysis, or in the Financial Plan to provide context to the industry standard ratios in the Investment Analysis section

Operations Plan

• expressed as a set physical location
• expressed as a set of requirements and characteristics
• How large will your facility be and why must it be this size?
• How much will it cost to buy or lease your facility?
• What utility, parking, and other costs must you pay for this facility?
• What expansion plans must be factored into the facility requirements?
• What transportation and storage issues must be addressed by facility decisions?
• What zoning and other legal issues must you deal with?
• What will be the layout for your facility and how will this best accommodate customer and employee requirements?
• Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
• What is the workflow plan for your operation?
• What work will your company do and what work will you outsource?

Operations Timeline

• When will you make the preparations, such as registering the business name and purchasing equipment, to start the venture?
• When will you begin operations and make your first sales?
• When will other milestone events occur such as moving operations to a larger facility, offering a new product line, hiring new key employees, and beginning to sell products internationally?
• May include a graphical timeline showing when these milestone events have occurred and are expected to occur

Business Structure and other Set-up Elements

Somewhere in your business plan you must indicate what legal structure your venture will take. Your financial statements, risk management strategy, and other elements of your plan are affected by the type of legal structure you choose for your business:

• Sole Proprietorship
• Partnership
• Limited Partnership
• Corporation
• Cooperative

As part of your business set-up, you need to determine what kinds of control systems you should have in place, establish necessary relationships with suppliers and prior to your start-up, and generally deal with a list of issues like the following. Many of your decisions related to the following should be described somewhere in your business plan:

• Zoning, equipment prices, suppliers, etc.
• Lease terms, leasehold improvements, signage, pay deposits, etc.
• Getting business license, permits, etc.
• Setting up banking arrangements
• Setting up legal and accounting systems (or professionals)
• Ordering equipment, locks and keys, furniture, etc.
• Recruiting employees, set up payroll system, benefit programs, etc.
• Training employees
• Testing the products/services that will be offered
• Testing the systems for supply, sales, delivery, and other functions
• Deciding on graphics, logos, promotional methods, etc.
• Ordering business cards, letter head, etc.
• Setting up supplier agreements
• Buying inventory, insurance, etc.
• Revising business plan
• And many more things, including, when possible, attracting purchased orders in advance of start-up through personal selling (by the owner, a paid sales force, independent representatives, or by selling through brokers wholesalers, catalog houses, retailers), a promotional campaign, or other means
• What is required to start up your business, including the purchases and activities that must occur before you make your first sale?
• When identifying capital requirements for start-up, a distinction should be made between fixed capital requirements and working capital requirements.

Fixed Capital Requirements

• What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its business?
• This section may include a start-up budget showing the machinery, equipment, furnishings, renovations, and other capital expenditures required prior to operations commencing.
• If relevant you might include information showing the financing required; fixed capital is usually financed using longer-term loans.

Working Capital Requirements

• What money is needed to operate the business (separately from the money needed to purchase fixed assets) including the money needed to purchase inventory and pay initial expenses?
• This section may include a start-up budget showing the cash required to purchase starting inventories, recruit employees, conduct market research, acquire licenses, hire lawyers, and other operating expenditures required prior to starting operations.
• If relevant you might include information showing the financing required … working capital is usually financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans.

Risk Management Strategies

• enterprise – liability exposure for things like when someone accuses your employees or products you sell of injuring them.
• financial – securing loans when needed and otherwise having the right amount of money when you need it
• operational – securing needed inventories, recruiting needed employees in tight labour markets, customers you counted on not purchasing product as you had anticipated, theft, arson, natural disasters like fires and floods, etc.
• avoid – choose to avoid doing something, outsource, etc.
• reduce – through training, assuming specific operational strategies, etc.
• transfer – insure against, outsource, etc.
• assume – self-insure, accept, etc.

Operating Processes

• What operating processes will you apply?
• How will you ensure your cash is managed effectively?
• How will you schedule your employees?
• How will you manage your inventories?
• If you will have a workforce, how will you manage them?
• How will you bill out your employee time?
• How will you schedule work on your contracts?
• How you will manufacture your product (process flow, job shop, etc.?)
• How will you maintain quality?
• How will you institute and manage effective financial monitoring and control systems that provide needed information in a timely manner?
• How will you manage expansion?
• May include planned layouts for facilities

Organizational Structure

• May include information on Advisory Boards or Board of Directors from which the company will seek advice or guidance or direction
• May include an organizational chart
• Can nicely lead into the Human Resources Plan

Human Resources Plan

• How do you describe your desired corporate culture?
• What are the key positions within your organization?
• How many employees will you have?
• What characteristics define your desired employees?
• What is your recruitment strategy? What processes will you apply to hire the employees you require?
• What is your leadership strategy and why have you chosen this approach?
• What performance appraisal and employee development methods will you use?
• What is your organizational structure and why is this the best way for your company to be organized?
• How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each employee?
• What are your payroll costs, including benefits?
• What work will be outsourced and what work will be completed in-house?
• Have you shown and described an organizational chart?

Recruitment and Retention Strategies

• Includes how many employees are required at what times
• Estimates time required to recruit needed employees
• employment advertisements
• contracts with employment agency or search firms
• travel and accommodations for potential employees to come for interviews
• travel and accommodations for interviewers
• facility, food, lost time, and other interviewing costs
• relocation allowances for those hired including flights, moving companies, housing allowances, spousal employment assistance, etc.
• may include a schedule showing the costs of initial recruitment that then flows into your start-up expense schedules

Leadership and Management Strategies

• What is your leadership philosophy?
• Why is it the most appropriate leadership approach for this venture?
• What training is required because of existing rules and regulations?
• How will you ensure your employees are as capable as required?
• Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
• Initial workplace orientation
• Financial systems
• Product features

Performance Appraisals

• How will you manage your performance appraisal systems?

Health and Safety

• Any legal requirements should be noted in this section (and also legal requirements for other issues that may be included in other parts of the plan)

Compensation

• Always completely justifies your planned employee compensation methods and amounts
• Always includes all components of the compensation (CPP, EI, holiday pay, etc.)
• Outlines how will you ensure both internal and external equity in your pay systems
• Describes any incentive-based pay or profit sharing systems planned
• May include a schedule here that shows the financial implications of your compensation strategy and supports the cash flow and income statements shown later

Key Personnel

• May include brief biographies of the key organizational people

Marketing Plan

• You must show evidence of having done proper research, both primary and secondary. If you make a statement of fact, you must back it up with properly referenced supporting evidence. If you indicate a claim is based on your own assumptions, you must back this up with a description as to how you came to the conclusion.
• It is a given that you must provide some assessment of the economic situation as it relates to your business. For example, you might conclude that the current economic crisis will reduce the potential to export your product and it may make it more difficult to acquire credit with which to operate your business. Of course, conclusions such as these should be matched with your assessment as to how your business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it will take advantage of any opportunities your assessment uncovers.
• If you apply the Five Forces Model, do so in the way in which it was meant to be used to avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This model is meant to be used to consider the entire industry—not a subcomponent of it (and it usually cannot be used to analyze a single organization).
• Your competitor analysis might fit within your assessment of the industry or it might be best as a section within your marketing plan. Usually a fairly detailed description of your competitors is required, including an analysis of their strengths and weaknesses. In some cases, your business may have direct and indirect competitors to consider. Be certain to maintain credibility by demonstrating that you fully understand the competitive environment.
• Assessments of the economic conditions and the state of the industry appear incomplete without accompanying appraisals outlining the strategies the organization can/should employ to take advantage of these economic and industry situations. So, depending upon how you have organized your work, it is usually important to couple your appraisal of the economic and industry conditions with accompanying strategies for your venture. This shows the reader that you not only understand the operating environment, but that you have figured out how best to operate your business within that situation.
• Have you done an effective analysis of your venture? (See the Organizational Analysis section below.)

Market Analysis

• Usually contains customer profiles, constructed through primary and secondary research, for each market targeted
• Contains detailed information on the major product benefits you will deliver to the markets targeted
• Describes the methodology used and the relevant results from the primary market research done
• If there was little primary research completed, justifies why it is acceptable to have done little of this kind of research and/or indicate what will be done and by when
• Includes a complete description of the secondary research conducted and the conclusions reached
• Define your target market in terms of identifiable entities sharing common characteristics. For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however, useful to define your target market as Canadian university students between the ages of 18 and 25, or as information technology managers at Canadian universities, or as student leaders at Canadian universities. Your targeted customer should generally be able to make or significantly influence the buying decision.
• You must usually define your target market prior to describing your marketing mix, including your proposed product line. Sometimes the product descriptions in business plans seem to be at odds with the described target market characteristics. Ensure your defined target market aligns completely with your marketing mix (including product/service description, distribution channels, promotional methods, and pricing). For example, if the target market is defined as Canadian university students between the ages of 18 and 25, the product component of the marketing mix should clearly be something that appeals to this target market.
• Carefully choose how you will target potential customers. Should you target them based on their demographic characteristics, psychographic characteristics, or geographic location?
• You will need to access research to answer this question. Based on what you discover, you will need to figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to how your targeted customers make their buying decisions.

Competition

• However, this information might fit instead under the market analysis section.
• Describes all your direct competitors
• Describes all your indirect competitors
• If you can, includes a competitor positioning map to show where your product will be positioned relative to competitors’ products

Figure 6 – Competitor Positioning Map (Illustration by Lee A. Swanson)

• What distinguishes your business from that of your competitors in a way that will ensure your sales forecasts will be met?
• You must clearly communicate the answers to these questions in your business plan to attract the needed support for your business. One caution is that it may sound appealing to claim you will provide a superior service to the existing competitors, but the only meaningful judge of your success in this regard will be customers. Although it is possible some of your competitors might be complacent in their current way of doing things, it is very unlikely that all your competitors provide an inferior service to that which you will be able to provide.

Marketing Strategy

• Covers all aspects of the marketing mix including the promotional decisions you have made, product decisions, distribution decisions related to how you will deliver your product to the markets targeted, and pricing decisions
• Outlines how you plan to influence your targeted customers to buy from you (what is the optimum marketing mix, and why is this one better than the alternatives)

Organizational Analysis

• Leads in to your marketing strategy or is positioned elsewhere depending upon how your business plan is best structured
• If doing so, always ensure this analysis results in more than a simple list of internal strengths and weaknesses and external opportunities and threats. A SWOT analysis should always prove to the reader that there are organizational strategies in place to address each of the weaknesses and threats identified and to leverage each of the strengths and opportunities identified.
• An effective way to ensure an effective outcome to your SWOT Analysis is to apply a TOWS Matrix approach to develop strategies to take advantage of the identified strengths and opportunities while mitigating the weaknesses and threats. A TOWS Matrix evaluates each of the identified threats along with each of the weaknesses and then each of the strengths. It does the same with each of the identified opportunities. In this way strategies are developed by considering pairs of factors
• The TOWS Matrix is a framework with which to help you organize your thoughts into strategies. Most often you would not label a section of your business plan as a TOWS Matrix. This would not normally add value for the reader. Instead, you should describe the resultant strategies—perhaps while indicating how they were derived from your assessment of the strengths, weaknesses, opportunities, and threats. For example, you could indicate that certain strategies were developed by considering how internal strengths could be employed toward mitigating external threats faced by the business.

Product Strategy

• If your product or service is standardized, you will need to compete on the basis of something else – like a more appealing price, having a superior location, better branding, or improved service. If you can differentiate your product or service you might be able to compete on the basis of better quality, more features, appealing style, or something else. When describing your product, you should demonstrate that you understand this.

Pricing Strategy

• If you intend to accept payment by credit card (which is probably a necessity for most companies), you should be aware of the fee you are charged as a percentage of the value of each transaction. If you don’t account for this you risk overstating your actual revenues by perhaps one percent or more.
• Sales forecasts must be done on at least a monthly basis if you are using a projected cash flow statement. These must be accompanied by explanations designed to establish their credibility for readers of your business plan. Remember that many readers will initially assume that your planned time frames are too long, your revenues are overstated, and you have underestimated your expenses. Well crafted explanations for all of these numbers will help establish credibility.

Distribution Strategy

• If you plan to use e-commerce, you should include all the costs associated with maintaining a website and accepting payments over the Internet.

Promotions Strategy

• If you are attracting customers away from competitors, how will these rivals respond to the threat you pose to them?
• If you intend to create new customers, how will you convince them to reallocate their dollars toward your product or service (and away from other things they want to purchase)?
• In what ways will you communicate with your targeted customers? When will you communicate with them? What specific messages do you plan to convey to them? How much will this promotions plan cost?
• If your entry into the market will not be a threat to direct competitors, it is likely you must convince potential customers to spend their money with you rather than on what they had previously earmarked those dollars toward. In your business plan you must demonstrate an awareness of these issues.
• Consider listing the promotional methods in rows on a spreadsheet with the columns representing weeks or months over probably about 18 months from the time of your first promotional expenditure. This can end up being a schedule that feeds the costs into your projected cash flow statement and from there into your projected income statements.
• If you phone or visit newspapers, radio stations, or television stations seeking advertising costs, you must go only after you have figured out details like on which days you would like to advertise, at what times on those days, whether you want your print advertisements in color, and what size of print advertisements you want.
• Carefully consider which promotional methods you will use. While using a medium like television may initially sound appealing, it is very expensive unless your ad runs during the non-prime times. If you think this type of medium might work for you, do a serious cost-benefit analysis to be sure.
• Some promotional plans are developed around newspaper ads, promotional pamphlets, printing business cards, and other more obvious mediums of promotion. Be certain to, include the costs of advertising in telephone directories, sponsoring a little league soccer team, producing personalized pens and other promotional client give-always, donating items to charity auctions, printing and mailing client Christmas cards, and doing the many things businesses find they do on-the-fly. Many businesses find it to be useful to join the local chamber of commerce and relevant trade organizations with which to network. Some find that setting a booth up at a trade fair helps launch their business.
• If you are concerned you might have missed some of these promotional expenses, or if you want to have a buffer in place in case you feel some of these opportunities are worthwhile when they arise, you should add some discretionary money to your promotional budget. A problem some companies get into is planning out their promotions in advance only to reallocate some of their newspaper advertisement money, for example, toward some of these other surprise purposes resulting in less newspaper advertising than had been intended.

Financial Plan

• It is nearly certain you will need to make monthly cash flow projections from business inception to possibly three years out. Your projections will show the months in which the activities shown on your fixed capital and working capital schedules will occur. This is nearly the only way to clearly estimate your working capital needs and, specifically, important things like the times when you will need to draw on or can pay down your operating loans and the months when you will need to take out longer-term loans with which to purchase your fixed assets. Without a tool like this you will be severely handicapped when talking with bankers about your expected needs. They will want to know how large of a line of credit you will need and when you anticipate needing to borrow longer-term money. It is only through doing cash flow projections will you be able to answer these questions. This information is also needed to determine things like the changes to your required loan payments and when you can take owner draws or pay dividends.
• Your projected cash flows are also used to develop your projected income statements and balance sheets.

Pro forma Cash Flow Statements

Pro forma income statements, pro forma balance sheets, investment analysis, projected financial ratios and industry standard ratios, critical success factors (sensitivity analysis).

Entrepreneurship and Innovation Toolkit Copyright © 2017 by Lee A. Swanson is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License , except where otherwise noted.

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11.4 The Business Plan

Learning objectives.

By the end of this section, you will be able to:

• Describe the different purposes of a business plan
• Describe and develop the components of a brief business plan
• Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Section	Description
Company summary	Brief overview (one to two paragraphs) of the problem, solution, and potential customers
Customer analysis	Description of potential customers and evidence they would purchase product
Market analysis	Size of market, target market, and share of market
Product or service	Current state of product in development and evidence it is feasible
Intellectual property	If applicable, information on patents, licenses, or other IP items
Competitive differentiation	Describe the competition and your competitive advantage
Company founders, management team, and/or advisor	Bios of key people showcasing their expertise and relevant experience
Financials	Projections of revenue, profit, and cash flow for three to five years
Amount of investment	Funding request and how funds will be used

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

• These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
• Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Executive Summary Component	Content
The Concept	La Vida Lola is a food truck serving the best Latin American and Caribbean cuisine in the Atlanta region, particularly Puerto Rican and Cuban dishes, with a festive flair. La Vida Lola offers freshly prepared dishes from the mobile kitchen of the founding chef and namesake Lola González, a Duluth, Georgia, native who has returned home to launch her first venture after working under some of the world’s top chefs. La Vida Lola will cater to festivals, parks, offices, community and sporting events, and breweries throughout the region.
Market Advantage	Latin food packed with flavor and flair is the main attraction of La Vida Lola. Flavors steeped in Latin American and Caribbean culture can be enjoyed from a menu featuring street foods, sandwiches, and authentic dishes from the González family’s Puerto Rican and Cuban roots. craving ethnic food experiences and are the primary customers, but anyone with a taste for delicious homemade meals in Atlanta can order. Having a native Atlanta-area resident returning to her hometown after working in restaurants around the world to share food with area communities offers a competitive advantage for La Vida Lola in the form of founding chef Lola González.
Marketing	The venture will adopt a concentrated marketing strategy. The company’s promotion mix will comprise a mix of advertising, sales promotion, public relations, and personal selling. Much of the promotion mix will center around dual-language social media.
Venture Team	The two founding members of the management team have almost four decades of combined experience in the restaurant and hospitality industries. Their background includes experience in food and beverage, hospitality and tourism, accounting, finance, and business creation.
Capital Requirements	La Vida Lola is seeking startup capital of $50,000 to establish its food truck in the Atlanta area. An additional $20,000 will be raised through a donations-driven crowdfunding campaign. The venture can be up and running within six months to a year.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Business Description

La Vida Lola will operate in the mobile food services industry, which is identified by SIC code 5812 Eating Places and NAICS code 722330 Mobile Food Services, which consist of establishments primarily engaged in preparing and serving meals and snacks for immediate consumption from motorized vehicles or nonmotorized carts. Ethnically inspired to serve a consumer base that craves more spiced Latin foods, La Vida Lola is an Atlanta-area food truck specializing in Latin cuisine, particularly Puerto Rican and Cuban dishes native to the roots of the founding chef and namesake, Lola González. La Vida Lola aims to spread a passion for Latin cuisine within local communities through flavorful food freshly prepared in a region that has embraced international eats. Through its mobile food kitchen, La Vida Lola plans to roll into parks, festivals, office buildings, breweries, and sporting and community events throughout the greater Atlanta metropolitan region. Future growth possibilities lie in expanding the number of food trucks, integrating food delivery on demand, and adding a food stall at an area food market. After working in noted restaurants for a decade, most recently under the famed chef José Andrés, chef Lola González returned to her hometown of Duluth, Georgia, to start her own venture. Although classically trained by top world chefs, it was González’s grandparents’ cooking of authentic Puerto Rican and Cuban dishes in their kitchen that influenced her profoundly. The freshest ingredients from the local market, the island spices, and her attention to detail were the spark that ignited Lola’s passion for cooking. To that end, she brings flavors steeped in Latin American and Caribbean culture to a flavorful menu packed full of street foods, sandwiches, and authentic dishes. Through reasonably priced menu items, La Vida Lola offers food that appeals to a wide range of customers, from millennial foodies to Latin natives and other locals with Latin roots.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Industry Analysis and Market Strategy

According to ’ first annual report from the San Francisco-based Off The Grid, a company that facilitates food markets nationwide, the US food truck industry alone is projected to grow by nearly 20 percent from $800 million in 2017 to $985 million in 2019. Meanwhile, an report shows the street vendors’ industry with a 4.2 percent annual growth rate to reach $3.2 billion in 2018. Food truck and street food vendors are increasingly investing in specialty, authentic ethnic, and fusion food, according to the report. Although the report projects demand to slow down over the next five years, it notes there are still opportunities for sustained growth in major metropolitan areas. The street vendors industry has been a particular bright spot within the larger food service sector. The industry is in a growth phase of its life cycle. The low overhead cost to set up a new establishment has enabled many individuals, especially specialty chefs looking to start their own businesses, to own a food truck in lieu of opening an entire restaurant. Off the Grid’s annual report indicates the average typical initial investment ranges from $55,000 to $75,000 to open a mobile food truck. The restaurant industry accounts for $800 billion in sales nationwide, according to data from the National Restaurant Association. Georgia restaurants brought in a total of $19.6 billion in 2017, according to figures from the Georgia Restaurant Association. There are approximately 12,000 restaurants in the metro Atlanta region. The Atlanta region accounts for almost 60 percent of the Georgia restaurant industry. The SAM is estimated to be approximately $360 million. The mobile food/street vendor industry can be segmented by types of customers, types of cuisine (American, desserts, Central and South American, Asian, mixed ethnicity, Greek Mediterranean, seafood), geographic location and types (mobile food stands, mobile refreshment stands, mobile snack stands, street vendors of food, mobile food concession stands). Secondary competing industries include chain restaurants, single location full-service restaurants, food service contractors, caterers, fast food restaurants, and coffee and snack shops. The top food truck competitors according to the , the daily newspaper in La Vida Lola’s market, are Bento Bus, Mix’d Up Burgers, Mac the Cheese, The Fry Guy, and The Blaxican. Bento Bus positions itself as a Japanese-inspired food truck using organic ingredients and dispensing in eco-friendly ware. The Blaxican positions itself as serving what it dubs “Mexican soul food,” a fusion mashup of Mexican food with Southern comfort food. After years of operating a food truck, The Blaxican also recently opened its first brick-and-mortar restaurant. The Fry Guy specializes in Belgian-style street fries with a variety of homemade dipping sauces. These three food trucks would be the primary competition to La Vida Lola, since they are in the “ethnic food” space, while the other two offer traditional American food. All five have established brand identities and loyal followers/customers since they are among the industry leaders as established by “best of” lists from area publications like the . Most dishes from competitors are in the $10–$13 price range for entrees. La Vida Lola dishes will range from $6 to $13. One key finding from Off the Grid’s report is that mobile food has “proven to be a powerful vehicle for catalyzing diverse entrepreneurship” as 30 percent of mobile food businesses are immigrant owned, 30 percent are women owned, and 8 percent are LGBTQ owned. In many instances, the owner-operator plays a vital role to the brand identity of the business as is the case with La Vida Lola. Atlanta has also tapped into the nationwide trend of food hall-style dining. These food halls are increasingly popular in urban centers like Atlanta. On one hand, these community-driven areas where food vendors and retailers sell products side by side are secondary competitors to food trucks. But they also offer growth opportunities for future expansion as brands solidify customer support in the region. The most popular food halls in Atlanta are Ponce City Market in Midtown, Krog Street Market along the BeltLine trail in the Inman Park area, and Sweet Auburn Municipal Market downtown Atlanta. In addition to these trends, Atlanta has long been supportive of international cuisine as Buford Highway (nicknamed “BuHi”) has a reputation for being an eclectic food corridor with an abundance of renowned Asian and Hispanic restaurants in particular. The Atlanta region is home to a thriving Hispanic and Latinx population, with nearly half of the region’s foreign-born population hailing from Latin America. There are over half a million Hispanic and Latin residents living in metro Atlanta, with a 150 percent population increase predicted through 2040. The median age of metro Atlanta Latinos is twenty-six. La Vida Lola will offer authentic cuisine that will appeal to this primary customer segment. La Vida Lola must contend with regulations from towns concerning operations of mobile food ventures and health regulations, but the Atlanta region is generally supportive of such operations. There are many parks and festivals that include food truck vendors on a weekly basis.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Operations and Management Plan Category	Content
Key Management Personnel	The key management personnel consist of Lola González and Cameron Hamilton, who are longtime acquaintances since college. The management team will be responsible for funding the venture as well as securing loans to start the venture. The following is a summary of the key personnel backgrounds. Chef Lola González has worked directly in the food service industry for fifteen years. While food has been a lifelong passion learned in her grandparents’ kitchen, chef González has trained under some of the top chefs in the world, most recently having worked under the James Beard Award-winning chef José Andrés. A native of Duluth, Georgia, chef González also has an undergraduate degree in food and beverage management. Her value to the firm is serving as “the face” and company namesake, preparing the meals, creating cuisine concepts, and running the day-to-day operations of La Vida Lola. Cameron Hamilton has worked in the hospitality industry for over twenty years and is experienced in accounting and finance. He has a master of business administration degree and an undergraduate degree in hospitality and tourism management. He has opened and managed several successful business ventures in the hospitality industry. His value to the firm is in business operations, accounting, and finance.
Advisory Board	During the first year of operation, the company intends to keep a lean operation and does not plan to implement an advisory board. At the end of the first year of operation, the management team will conduct a thorough review and discuss the need for an advisory board.
Supporting Professionals	Stephen Ngo, Certified Professional Accountant (CPA), of Valdosta, Georgia, will provide accounting consulting services. Joanna Johnson, an attorney and friend of chef González, will provide recommendations regarding legal services and business formation.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Marketing Plan Category	Content
Overview	La Vida Lola will adopt a concentrated marketing strategy. The company’s promotion mix will include a mix of advertising, sales promotion, public relations, and personal selling. Given the target millennial foodie audience, the majority of the promotion mix will be centered around social media platforms. Various social media content will be created in both Spanish and English. The company will also launch a crowdfunding campaign on two crowdfunding platforms for the dual purpose of promotion/publicity and fundraising.
Advertising and Sales Promotion	As with any crowdfunding social media marketing plan, the first place to begin is with the owners’ friends and family. Utilizing primarily Facebook/Instagram and Twitter, La Vida Lola will announce the crowdfunding initiative to their personal networks and prevail upon these friends and family to share the information. Meanwhile, La Vida Lola needs to focus on building a community of backers and cultivating the emotional draw of becoming part of the La Vida Lola family. To build a crowdfunding community via social media, La Vida Lola will routinely share its location, daily if possible, on both Facebook, Instagram, and Twitter. Inviting and encouraging people to visit and sample their food can rouse interest in the cause. As the campaign is nearing its goal, it would be beneficial to offer a free food item to backers of a specific level, say $50, on one specific day. Sharing this via social media in the day or two preceding the giveaway and on the day of can encourage more backers to commit. Weekly updates of the campaign and the project as a whole are a must. Facebook and Twitter updates of the project coupled with educational information sharing helps backers feel part of the La Vida Lola community. Finally, at every location where La Vida Lola is serving its food, signage will notify the public of their social media presence and the current crowdfunding campaign. Each meal will be accompanied by an invitation from the server for the patron to visit the crowdfunding site and consider donating. Business cards listing the social media and crowdfunding information will be available in the most visible location, likely the counter. Before moving forward with launching a crowdfunding campaign, La Vida Lola will create its website. The website is a great place to establish and share the La Vida Lola brand, vision, videos, menus, staff, and events. It is also a great source of information for potential backers who are unsure about donating to the crowdfunding campaigns. The website will include these elements: . Address the following questions: Who are you? What are the guiding principles of La Vida Lola? How did the business get started? How long has La Vida Lola been in business? Include pictures of chef González. List of current offerings with prices. Will include promotional events and locations where customers can find the truck for different events. Steps will be taken to increase social media followers prior to launching the crowdfunding campaign. Unless a large social media following is already established, a business should aggressively push social media campaigns a minimum of three months prior to the crowdfunding campaign launch. Increasing social media following prior to the campaign kickoff will also allow potential donors to learn more about La Vida Lola and foster relationship building before attempting to raise funds.
Facebook Content and Advertising	The key piece of content will be the campaign pitch video, reshared as a native Facebook upload. A link to the crowdfunding campaigns can be included in the caption. Sharing the same high-quality video published on the campaign page will entice fans to visit Kickstarter to learn more about the project and rewards available to backers.
Crowdfunding Campaigns	Foodstart was created just for restaurants, breweries, cafés, food trucks, and other food businesses, and allows owners to raise money in small increments. It is similar to Indiegogo in that it offers both flexible and fixed funding models and charges a percentage for successful campaigns, which it claims to be the lowest of any crowdfunding platform. It uses a reward-based system rather than equity, where backers are offered rewards or perks resulting in “low-cost capital and a network of people who now have an incentive to see you succeed.” Foodstart will host La Vida Lola’s crowdfunding campaigns for the following reasons: (1) It caters to their niche market; (2) it has less competition from other projects which means that La Vida Lola will stand out more and not get lost in the shuffle; and (3) it has/is making a name/brand for itself which means that more potential backers are aware of it. La Vida Lola will run a simultaneous crowdfunding campaign on Indiegogo, which has broader mass appeal.
Publicity	Social media can be a valuable marketing tool to draw people to the Foodstarter and Indiegogo crowdfunding pages. It provides a means to engage followers and keep funders/backers updated on current fundraising milestones. The first order of business is to increase La Vida Lola’s social media presence on Facebook, Instagram, and Twitter. Establishing and using a common hashtag such as #FundLola across all platforms will promote familiarity and searchability, especially within Instagram and Twitter. Hashtags are slowly becoming a presence on Facebook. The hashtag will be used in all print collateral. La Vida Lola will need to identify social influencers—others on social media who can assist with recruiting followers and sharing information. Existing followers, family, friends, local food providers, and noncompetitive surrounding establishments should be called upon to assist with sharing La Vida Lola’s brand, mission, and so on. Cross-promotion will further extend La Vida Lola’s social reach and engagement. Influencers can be called upon to cross promote upcoming events and specials. The crowdfunding strategy will utilize a progressive reward-based model and establish a reward schedule such as the following: In addition to the publicity generated through social media channels and the crowdfunding campaign, La Vida Lola will reach out to area online and print publications (both English- and Spanish-language outlets) for feature articles. Articles are usually teased and/or shared via social media. Reaching out to local broadcast stations (radio and television) may provide opportunities as well. La Vida Lola will recruit a social media intern to assist with developing and implementing a social media content plan. Engaging with the audience and responding to all comments and feedback is important for the success of the campaign. Some user personas from segmentation to target in the campaign:

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

• You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
• Would you have started the Laughing Man Foundation?
• What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

• What steps should the new restaurant take to create a new business plan?
• Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

• 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
• 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
• 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
• 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
• 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
• 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
• 54 Foodstart. http://foodstart.com
• 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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7 Business Plan Examples to Inspire Your Own (2024)

Need support creating your business plan? Check out these business plan examples for inspiration.

Any aspiring entrepreneur researching how to start a business will likely be advised to write a business plan. But few resources provide business plan examples to really guide you through writing one of your own.

Here are some real-world and illustrative business plan examples to help you craft your business plan .

7 business plan examples: section by section

The business plan examples in this article follow this template:

• Executive summary.  An introductory overview of your business.
• Company description.  A more in-depth and detailed description of your business and why it exists.
• Market analysis.  Research-based information about the industry and your target market.
• Products and services.  What you plan to offer in exchange for money.
• Marketing plan.   The promotional strategy to introduce your business to the world and drive sales.
• Logistics and operations plan.  Everything that happens in the background to make your business function properly.
• Financial plan.  A breakdown of your numbers to show what you need to get started as well as to prove viability of profitability.
• Executive summary

Your  executive summary  is a page that gives a high-level overview of the rest of your business plan. It’s easiest to save this section for last.

In this  free business plan template , the executive summary is four paragraphs and takes a little over half a page:

• Company description

You might repurpose your company description elsewhere, like on your About page, social media profile pages, or other properties that require a boilerplate description of your small business.

Soap brand ORRIS  has a blurb on its About page that could easily be repurposed for the company description section of its business plan.

You can also go more in-depth with your company overview and include the following sections, like in the example for Paw Print Post:

• Business structure.  This section outlines how you  registered your business —as an  LLC , sole proprietorship, corporation, or other  business type . “Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews.”
• Nature of the business.  “Paw Print Post sells unique, one-of-a-kind digitally printed cards that are customized with a pet’s unique paw prints.”
• Industry.  “Paw Print Post operates primarily in the pet industry and sells goods that could also be categorized as part of the greeting card industry.”
• Background information.  “Jane Matthews, the founder of Paw Print Post, has a long history in the pet industry and working with animals, and was recently trained as a graphic designer. She’s combining those two loves to capture a niche in the market: unique greeting cards customized with a pet’s paw prints, without needing to resort to the traditional (and messy) options of casting your pet’s prints in plaster or using pet-safe ink to have them stamp their ‘signature.’”
• Business objectives.  “Jane will have Paw Print Post ready to launch at the Big Important Pet Expo in Toronto to get the word out among industry players and consumers alike. After two years in business, Jane aims to drive $150,000 in annual revenue from the sale of Paw Print Post’s signature greeting cards and have expanded into two new product categories.”
• Team.  “Jane Matthews is the sole full-time employee of Paw Print Post but hires contractors as needed to support her workflow and fill gaps in her skill set. Notably, Paw Print Post has a standing contract for five hours a week of virtual assistant support with Virtual Assistants Pro.”

Your  mission statement  may also make an appearance here.  Passionfruit  shares its mission statement on its company website, and it would also work well in its example business plan.

• Market analysis

The market analysis consists of research about supply and demand, your target demographics, industry trends, and the competitive landscape. You might run a SWOT analysis and include that in your business plan. 

Here’s an example  SWOT analysis  for an online tailored-shirt business:

You’ll also want to do a  competitive analysis  as part of the market research component of your business plan. This will tell you who you’re up against and give you ideas on how to differentiate your brand. A broad competitive analysis might include:

• Target customers
• Unique value add  or what sets their products apart
• Sales pitch
• Price points  for products
• Shipping  policy
• Products and services

This section of your business plan describes your offerings—which products and services do you sell to your customers? Here’s an example for Paw Print Post:

• Marketing plan

It’s always a good idea to develop a marketing plan  before you launch your business. Your marketing plan shows how you’ll get the word out about your business, and it’s an essential component of your business plan as well.

The Paw Print Post focuses on four Ps: price, product, promotion, and place. However, you can take a different approach with your marketing plan. Maybe you can pull from your existing  marketing strategy , or maybe you break it down by the different marketing channels. Whatever approach you take, your marketing plan should describe how you intend to promote your business and offerings to potential customers.

• Logistics and operations plan

The Paw Print Post example considered suppliers, production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan provides a breakdown of sales, revenue, profit, expenses, and other relevant financial metrics related to funding and profiting from your business.

Ecommerce brand  Nature’s Candy’s financial plan  breaks down predicted revenue, expenses, and net profit in graphs.

It then dives deeper into the financials to include:

• Funding needs
• Projected profit-and-loss statement
• Projected balance sheet
• Projected cash-flow statement

You can use this financial plan spreadsheet to build your own financial statements, including income statement, balance sheet, and cash-flow statement.

Types of business plans, and what to include for each

A one-page business plan is meant to be high level and easy to understand at a glance. You’ll want to include all of the sections, but make sure they’re truncated and summarized:

• Executive summary: truncated
• Market analysis: summarized
• Products and services: summarized
• Marketing plan: summarized
• Logistics and operations plan: summarized
• Financials: summarized

A startup business plan is for a new business. Typically, these plans are developed and shared to secure  outside funding . As such, there’s a bigger focus on the financials, as well as on other sections that determine viability of your business idea—market research, for example.

• Market analysis: in-depth
• Financials: in-depth

Your internal business plan is meant to keep your team on the same page and aligned toward the same goal.

A strategic, or growth, business plan is a bigger picture, more-long-term look at your business. As such, the forecasts tend to look further into the future, and growth and revenue goals may be higher. Essentially, you want to use all the sections you would in a normal business plan and build upon each.

• Market analysis: comprehensive outlook
• Products and services: for launch and expansion
• Marketing plan: comprehensive outlook
• Logistics and operations plan: comprehensive outlook
• Financials: comprehensive outlook

Feasibility

Your feasibility business plan is sort of a pre-business plan—many refer to it as simply a feasibility study. This plan essentially lays the groundwork and validates that it’s worth the effort to make a full business plan for your idea. As such, it’s mostly centered around research.

Set yourself up for success as a business owner

Building a good business plan serves as a roadmap you can use for your ecommerce business at launch and as you reach each of your business goals. Business plans create accountability for entrepreneurs and synergy among teams, regardless of your  business model .

Kickstart your ecommerce business and set yourself up for success with an intentional business planning process—and with the sample business plans above to guide your own path.

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Business plan examples FAQ

How do i write a simple business plan, what is the best format to write a business plan, what are the 4 key elements of a business plan.

• Executive summary: A concise overview of the company's mission, goals, target audience, and financial objectives.
• Business description: A description of the company's purpose, operations, products and services, target markets, and competitive landscape.
• Market analysis: An analysis of the industry, market trends, potential customers, and competitors.
• Financial plan: A detailed description of the company's financial forecasts and strategies.

What are the 3 main points of a business plan?

• Concept: Your concept should explain the purpose of your business and provide an overall summary of what you intend to accomplish.
• Contents: Your content should include details about the products and services you provide, your target market, and your competition.
• Cashflow: Your cash flow section should include information about your expected cash inflows and outflows, such as capital investments, operating costs, and revenue projections.

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• CPA NEW SYLLABUS 2021
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KNEC / TVET CDACC STUDY MATERIALS, REVISION KITS AND PAST PAPERS

Quality and Updated

• CHAPTER FIVE. FINANCIAL PLAN.

CHAPTER FIVE.

                                      FINANCIAL PLAN.

The main reason for preparing a business plan is to receive funds. When preparing the plan, one analyzes the financial requirements of the business.

The financial plan is an important part of the business plan because it is here that the profitability of the intended business is demonstrated to the entrepreneur and to the potential financiers. It provides a tool for monitoring the financial performance of the business. In this chapter of the business plan, an analysis of financial requirements of a business is presented. The financial plans development is also illustrated.

OBJECTIVES OF THE FINANCIAL PLAN

• Maintain a healthy liquidity position throughout the trading period.
• Maintain return on owners’ equity(ROE) e.g. at 25%
• Realize a steady growth on income throughout the period.
• Maintain and control expenses.
• Maintain an effective accounting sytem-quickbooks,sage,any accounting related software

FINANCIAL ASSUMPTIONS.

• The expenses are expected to rise by 5% as business operations expand.
• Creditors are to be increased by a certain percentage per year.
• Debtors are to increase by a certain percentage per year
• Net profit is expected to increase by a certain percentage per annum
• Net profit realized would be ploughed back to the business so as to expand the business.

In the financial plan, you will deal with financial aspects of your proposed business. To gauge your future financial potential, you will prepare

• Proforma/projected balance sheets,
• Proforma profit and loss accounts and
• A projected cash flow statement.

You will also determine;

• The break-even level of sales
• Calculate the expected profitability ratios of your business
• Financial requirement
• Proposed capitalization.
• Pre-operational costs

Entails costs incurred before the start of the business.

Research
Travelling/transport
Designing
Licenses and permits
Advertisement
Professional fee
Installation
Rent deposit
Utility bills(water, telephone and power)
vehicle
Miscellaneous
Production,facilites and capacity

5.2 Proforma balance sheet

A balance sheet is a financial statement that shows the financial position of the business for a certain period of time (usually one year).

This financial statement depicts the financial structure of a business at the end of an accounting period. It has three major components: assets, liabilities, and stockholders’ equity. They show what the business owns or controls, how much is owed to creditors, and the residue net worth of the enterprise after asset value has debt subtracted from it.

To prepare this document one should understand the concept of BASIC ACCOUNTING EQUATION that appears like this.

A=      C+     L

Accounting is considered the language of business

ANALYSIS OF THE BASIC ACCOUNTING EQUATION

Some assets are tangible like cash while others are theoretical or intangible like goodwill or copyrights. Another common asset is a receivable. This is a promise to be paid from another party. Receivables arise when a company provides a service or sells a product to someone on credit. All of these assets are resources that a company can use for future benefits.

Assets are classified in two main types.

• 1 . Fixed/Non-current assets -Required by the business to assist in earning revenues and not for sale. They are normally expected to be in business for more than one year.
• Current assets -They are not expected to last for more than one year. They are mostly directly related to trading activities of the firm.

Here are some common examples of assets:

• Cash at bank
• Accounts Receivable/debtors
• Prepaid Expenses
• Plant and machinery
• Cash in hand
• Prepayments

2 LIABILITIES

A liability, in its simplest terms, is an amount of money owed to another person or organization. Said a different way, liabilities are creditors’ claims on company assets because this is the amount of assets creditors would own if the company liquidated. A common form of liability is a payable. Payables are the opposite of receivables. When a company purchases goods or services from other companies on credit, a payable is recorded to show that the company promises to pay the other companies for their assets. Here are some examples of some of the most common liabilities:

• Accounts payable /creditors
• Lines of Credit
• Personal Loans
• Officer Loans
• Unearned income
• Bank overdraft

Liabilities are classified in two main types

• Long term liabilities -They are expected to last or to be paid after one year e.g. 5 years loans from a bank.
• Current liabilities -Last for a period of less than one year and therefore would be paid within one year.
• EQUITY (CAPITAL)

Equity represents the portion of company/business assets that shareholders or partners own. In other words, the shareholders or partners own the remainder of assets once all of the liabilities are paid off.

VARIABLES AFFECTING CAPITAL

• Additional investments

One can prepare a vertical or horizontal/T balance sheet.

• 1 . Horizontal /T format

Non-current assets are listed in order of performance as shown i.e. from land and buildings to motor vehicles.

The current assets are listed in order of liquidity i.e. which assets is far from being converted into cash. Example, stock is not yet sold, (i.e. not yet realized yet) then when it is sold we either get cash or a debtor (if sold on credit). When the debtor pays then the debtor may pay by cheque (cash has to be banked) or cash.

The current liabilities are listed in order of payment i.e. which is due for payment first. Bank overdraft is payable on demand by the bank, then by creditors.

5.3 Working capital.

Working capital = Current assets – current liabilities.

• Cash flow projection

This is a financial statement that shows cash in and out of the business.

• Transactions that generate cash in a business include: sales, payments from debtors, discount received, rent received, loan received and many more.
• Transactions that may reduce cash in a business include: purchases, salaries/wages, rent payments, payment to creditors, standing orders, discount allowed and many more.

NB It’s always good to prepare cash flow projection for three years.

A business enterprise normally prepares the following two financial statements

• Profit or loss or income statement which helps to find out the profit or loss made as result of operations of the company over a specified period.
• Balance sheet or financial position statement which reflects the state of asset and liabilities of company on a particular period.

Another required financial statement is cash flow statement. This is requirement of International Accounting 7 (IAS 7)

NEED FOR CASH FLOW STATEMENT.

Users of financial statements, require understanding how the business generated cash and how the cash was used. Unlike the income statement where profit reported is influenced by accounting policies and estimates, cash flow indicate the performance of the business enterprise without such influences, therefore provide a better perspective to evaluating the performance. Remember that a business enterprise can be making profits, while at the same time suffering from cash crisis. This can lead to business enterprise wind up.

COMPONENTS OF CASH FLOW STATEMENT

Cash flow statement summaries the cashbook, by reconciling the opening and closing balance of the cash and cash equivalents.

• Demanded deposits in banks
• Short term investments

The cash movement activities are classified into 3 categories

• Operating cash movement/ activities
• Investing cash movement/ activities
• Financial cash movement/ activities

USES OF CASH FLOW STATEMENTS

Cash flow statements have many uses other than the legal need for some companies to prepare them. A few cases where a business might find them useful is answering such questions as below

Small businessman may want to know why he now has an overdraft. He started off the year with money in the bank, he has made profit and yet he now has a bank overdraft. Another businessman may want to know why the bank balance has risen even though the business is losing money. The partners in a business have put in additional capital during the year. Even so, the bank balance has fallen dramatically. They may want explanation as to how this has happened. A study of the final accounts themselves would not give them the information that they may needed. However, a study of the cash flow statement in each case will reveal the answer to their questions. Besides the answers to such specific queries, cash flow statement should also help businesses to assess the following.

• The cash flows which the business may be able to generate in the future;
• How far the business will be able to meet future commitment, e.g tax due, loan repayments, interest payments, contracts that could possible lose quite a lot of money;
• How far future share issues may be needed or additional capital in the case of sole trader or partnership;
• A valuation of the business

SAMPLE FROM AN OPERATIONAL BUSINESS.

Cash Sales

Credit sales

Capital introduced e.g.  loan

Other income

TOTAL RECEIPTS (A)

PAYMENTS

Cash purchases

Credit purchases

Salaries/wages

Rent/rates/water

Property tax

Light/heat/power

Insurance

Maintenance/Repair

Leasing payments

Drawings

Interest charges

Capital expenditure

Telephone

Postage

Stationery/printing

Transportation

Vehicle running cost

Other

VAT payable

TOTALPAYMENT(B)

NET CASH FLOW (A-B)

BALANCE BROUGHT FORWARD

NEW BALANCE

5.4 Projected cash flow for the year 20xx

Opening cash	480,000
Cash sales	470,000
Credit sales
Other inflows	40,000
Total cash inflows	510,000
Cash available	990,000
Cash outflows
Loan payment	20,000
Salaries and wages	98,500
Rent	30,000
insurance	10,000
bills	5,000
Purchases	323,000
Repair and maintenance
Licenses and permits	10,000
Transport	8,000
Total cash outflow	504,500
Net cash flow

• projected cash flow for the year 20xx
• Proforma income statement (Trading, Profit and Loss account)

This is one of the final account and has two sections

• Trading account

Summarizes trading activities i.e. sales and purchases of goods of a business and tries to determine the gross profit for the relevant financial period.

The gross profit is then taken up in profit and loss account as part of the income

• Profit and loss account.

It shows the net profit/net loss of the business as made from all the activities during a financial period. The net profit/loss is determined by deducting expenses from all incomes of the same financial period.

SAMPLE FORMAT FROM AN OPERATING BUSINESS

THIKA TRADERS

                     TRADING PROFIT AND LOSS ACCOUNT

                      FOR THE YEAR ENDED 31 DECEMBER 20XX

Opening stock                                          xxx	Sales                                                    xxx
Purchases                      xxx	-return inwards                                    xxx
+ carriage inwards	Net sales
xxx
-returns outwards          xxx
Net purchases
Cost of goods available for sale               xxx
-closing stock
Cost of goods sold                                    xxx
Gross profit c/d
	Gross profit b/d                                 xxx
Expenses	Incomes                                             xxx
Total expenses                                        xxx
Net profit c/d
	Net profit b/d                                  xxx

5.5 Proforma income statement for the year 20xx

Cash sales	470,000
Credit sales
Total sales	470,000
Cost of goods	270,000
Gross profit	200,000
Expenses
Salaries and wages	98,500
Loan payment	20,000
Rent	30,000
insurance	10,000
Electricity bills	5,000
Repair and maintenance
Licenses and permits	10,000
Other expenses	3,500
Transport	8,000
Total expenses	188,000
Net profit	12,000
Taxation 10%	1,200
Net profit after taxation	10,800

• Proforma income statement for the year 20xx

5.6 Break even analysis.

Break even analysis is where the total revenue is equal to the total costs. The firm is at normal profit or zero profit.

If total revenues are more than total costs, the firm makes abnormal or supernormal profits.

If total revenues are less than total costs the firm will make losses.

Break even analysis is also known as Cost Volume Analysis.

Assumptions of break-even point analysis.

• Fixed cost will remain constant.it means that the fixed cost does not change as output changes.
• Cost and revenue behave in a linear fashion or linear manner.it means if costs increases, revenues will increase proportionally.
• The only factor affecting cost and revenue is volume (turnover).
• Technology, production methods and efficiency does not change.
• For graphical methods, the analysis relates to one product or to a constant product.
• The closing stock is valued at marginal cost only

USEFULLNESS OF BREAK EVEN POINT ANALYSIS

As a management tool, it has the following benefits.

• Helps to find specific level of output
• Shows behavior trend of cost and sales.
• Information can be used to make proper decisions.
• To know the quantity which is safer to produce (safety level).

LIMITATIONS TO BREAK-EVEN POINT ANALYSIS.

• Only done within specific levels of activity.
• Fixed costs may change at different levels of activity especially in long run.
• Variable costs may not give a linear trend.
• The relevant time factor can affect break-even analysis.

FORMULAE TO BE USED IN BREAK EVEN ANALYSIS.

• BEP in units = fixed costs

Contribution/unit

• BEP in value(shs) = fixed costs  
• Contribution/sales ratio = Contribution/unit

Selling price

• Number of units for target profits = fixed costs +target profits
• Sales for target profit= fixed costs +target profits(selling price)

A company makes a single product with a price of shs 10 and a marginal cost of shs 6 and the fixed cost of shs 60,000 pa.Calculate.

• Number of units to break-even point(BEP)
• BEP in units= fixed costs

a.Contribution=selling price-marginal/variable cost

BEP in units =      60,000

7 Desired financing

Pre-operational costs
Working capital
Fixed assets
Total

5.8 Capitalization

Owners contribution
Borrowed funds
Total investment

• What security will you give? (Consider: fixed assets, mortgage, collateral security e.g land title deeds or property title deeds, other acceptable security (specify).
• What will be your preferred loan repayment terms?(Consider the amount of the loan, the repayment period, loan interest percentage grace period and monthly installments.)

5.9 profitability ratios

• Gross profit margin

Gross profit      x          100      =   ……………………… %

Year 1             Year 2             Year3

Percentage ……………………………………………………………

• Return on equity

Net profit after tax       x          100        = …………………… %

Owner’s equity

Year 1              Year 2              Year3

Owners’ equity=opening capital+ net profit-withdrawals

• Return on investment

Net profit after tax + interest x 100    =   …………………. ksh

Total investment

• Net profit ratio= Net profit x 100      =   ……………………… %
• Asset turnover = Sales revenue (total sales) x100 =   ……………………… %

Assets (CA+FA)

• Quick ratio= current assets-stock (closing)

Current liabilities

• Liquidity ratio = CA

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A National Training and Certification Program for Transit Vehicle Maintenance Instructors (2015)

Chapter: chapter 5 - business plan.

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

66 Business Plan Overview In order to implement the certification on a nationwide basis, a clear structure must be developed, and an organization must be identified with a capacity to develop, implement and maintain the structure. This business plan assumes there will be two main players involved in implementing the program. First, there will be a national steering committee responsible for issuing an RFP and contracting with an administrator, ensuring overall quality of implementation, and being responsible to the industry. This organization may be a successor to the Project F-19 panel, a newly established nonprofit, a subcommittee of APTA, or an informal committee of industry leaders. This steering organization will in turn select an AO. The AO, through a creden- tialing management system, will provide a consistent and timely confirmation of a participant’s progress through the competency model, and issue the certifications. The AO will also, either directly or through subcontractors, develop an infrastructure to directly deliver the training needed for the competency model, as well as overseeing the approval and acceptance of alternative courses. Structural Elements of AO The Project Team envisions that the AO could be an existing organization with the appropriate capacity and experience, or a newly formed nonprofit created for the purpose of implementing the program. It seems likely though, that a brand new organization whose sole purpose would be running the ICP would have more significant fixed costs than an existing organization with experience running similar or complementary programs. The organization should meet the requirements and be answerable to a standing committee of industry representatives to ensure that all expectations for the program are met. As part of the program launch, a number of critical qualifications for the AO should be sought in the RFP. The selected organization should possess these characteristics, listed in rough order of priority: • Ability to manage a program of national scope: The organization will need to communicate the value of the program to the industry as a whole and be able to administer the program without bias to any geographic region. • Experience working with transit industry: The organization should have the ability to work with multiple transit stakeholders and understand the challenges and limitations transit organizations face. • Documented instructional design expertise and material development capacity: The organi- zation will need to finalize the design of the competency model and develop all material to implement the curriculum in the identified delivery methods. C H A P T E R 5 Business Plan

Business Plan 67 • Training delivery experience, especially to instructors: The organization will need to deliver directly or subcontract with experienced trainers. It will be advantageous to have experienced training professionals and transit personnel. • Certification program administration experience and program design and administration staff: The organization will need to show a plan to use a robust credentialing management system that can seamlessly track a participant’s progress and communicate progress to participants and employing agencies. • IT infrastructure (Training and certification information management system): Experience with an adequate credentialing management system and the IT capacity to implement the program will be critical. • Sound legal system to protect against liabilities. • ADA requirements. • Program maintenance: The organization will need to have a plan to regularly review the program, update core competencies, and revise the program as necessary to meet the ongoing needs of the industry. Potential Organizations for Program Development and Delivery In Task 1 of the project, SME survey respondents provided a list of organizations that may have the potential to develop and deliver all or some components of the national training and certification program. The suggested organizations included: • Colleges, universities and technical schools (13): Many respondents consider any educational institution that prepares teachers in teaching methods for adult learners as potentially capable of carrying out the program. A dozen examples were given by the respondents, mostly local colleges and universities in their areas. • For profit and not-for-profit training, research and technical assistance organizations (8): Many of these organizations have provided training and/or certification programs to transit maintenance personnel or trainers. • Industry associations (2): Industry associations have increasingly taken on workforce develop- ment as a priority of their services to members. In the Project F-19 survey, respondents mentioned one national and one state public transportation association as examples. • Large transit agencies (2): Large training departments can have well-developed programs to prepare skilled technical workers to become equally skilled instructors. These training environments stress strong preparation for classroom time, solid documentation on what is taught and hands-on and interactive learning. Survey participants included two examples of large transit agencies as potential providers. The full details of these programs are included in the Task 2, Best Practices Report found in Chapter 3. • OEMs (4): Despite their role in transit technical training, only one respondent listed transit OEMs as potential organizations for delivering instructor training. The organizations with potential in developing and delivering instructor training and/or certification as identified through the SME survey are listed in Appendix B, along with their locations and respondent comments. An original task assignment called for the Project Team to assess the capabilities of these organizations. However, the oversight panel thought it best to leave that work for the future competitive RFP process and instead steered the Project Team toward identifying the qualification requirements needed for a national AO, and identifying existing training programs and courses that could be considered as equal alternatives to core program offerings. The list of potential organizations provides a reference point to the future AO selection process.

68 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Core Competency Course Delivery A major factor in determining costs for development, delivery, and administration of the program depends on the method of course delivery selected. There are three possible options for managing the delivery of each course described in the core competency model. First, existing courses from outside providers could be accepted as equivalent for meeting all competency requirements of the model. For each core competency course, the AO will confirm that a course submitted meets the requirements, and review the reflection paper and/or course capstone requirements against an objective model. The process for evaluating these courses is described later. Alternatively, the AO or a single subcontractor could directly offer courses specifically designed to meet these competencies and delivered directly to transit instructors. Further, each of those courses could be delivered either through a traditional classroom setting or an e-learning/ video conferencing platform. There are a number of advantages and disadvantages to pursuing the different approaches as shown in Table 5.1. It seems that, with the exception of the course for mentor core competencies, there will not usually be enough participation in the program to make centralized in-person delivery of the courses viable. It would require travel for multiple days to a central location, or an instructor traveling to different regions, but in that case achieving a sufficient class size will be very difficult. In turn, with a very small class size, per student and per course cost will need to be higher, and that will further suppress participation. However, the AO may be able to identify some courses that could be offered on a limited basis in person, perhaps by tying it to another event that will draw instructors and transit professionals nationwide, such as the NTI Transit Trainers’ workshop or various APTA conferences. The e-learning and video conferencing option will almost certainly require a significant up-front development investment, but would offer flexible scheduling of courses at a reasonable cost to the AO and a reasonable charge to those pursuing certification. (Note: There may also be some existing e-learning courses that some potential AO, or subcontractors to the AO, may have that may meet some or all of the program requirements. Identifying if these exist and how to make them viable for use in the certification program will be an important part of determining development Advantages Disadvantages Outside Equivalent Courses The courses already exist and are dispersed geographically Interaction with instructors from other industries Courses not limited to transit instructor population means they can be offered more regularly Inconsistent experiences and emphases May require more time and commitment than necessary (i.e., enrollment in full grad program) Directly Delivered Courses – In-Person Consistent delivery of content that can be continually evaluated In-person interaction of transit instructors sharing best practices Need funding for development of single approved curriculum and courseware Travel costs for instructor and/or students Limited scheduling ability; would need to cancel course if enrollment not sufficient Directly Delivered Courses – E-Learning / Video Conferencing Consistent delivery of content that can be continually evaluated Interaction of transit instructors sharing best practices More flexible scheduling Substantial development cost for platform and e-learning material Inconsistent equipment on user end to participate in the classes Table 5.1. Advantages and disadvantages of course delivery approaches.

Business Plan 69 costs accurately.) Using a centrally developed e-learning and video conferencing curriculum also ensures that all participants receive the same information and level of quality and will provide opportunities for participants to learn from each other in a collaborative environment. However, it also seems important to offer the flexibility for students to submit equivalent outside courses to demonstrate the competencies. The conclusion is that the advantages and disadvantages for delivering the course on different platforms, or accepting existing courses as equivalent, will be slightly different for each course that is part of the program plan. There is no distinct advantage to forcing all courses into one mode of delivery, and the AO will need to explore the best available options for each course. The business plan therefore assumes a mix of delivery methods will be used. The operating cost and revenue projections included later assume an offering of e-learning classes will be available for all courses except mentoring, and that mentoring will be delivered in person. The projections also assume that at least one equivalent existing course will be identified for each part of the program plan, and that these outside courses will be chosen by 50 percent of the participants. Initial Development Costs Developing a full suite of e-learning and video conferencing materials for delivering the core competency model will require a significant investment. A common rule of thumb is that for each hour of instruction, 10–25 hours of professional instructional design time is necessary. With the necessity of extensive interactive material, it is reasonable to think these costs would be on the high end of that estimate. This would give an estimated development cost of: 92 hours instructional time 20 hours of development per hours of instruction $100 hr fully loaded cost of professional instructional design $184,000 × × = As shown later in the operating cost and revenue projections, even at a high rate of participation among transit maintenance instructors, the projected revenue surplus is not enough to attract an organization to front the money for initial development at this level. It seems very likely that some initial source of the money needs to be found through a consortium of transit agencies, newly established nonprofit, or potential grants. A similar situation was faced with the launch of the Transit Bus Mechanic testing program, where ASE received funding to develop the initial tests in exchange for an agreement to offer and administer the tests for a minimum of five years regardless of participation levels. As mentioned earlier, there may be some courses for which some of this development has already been completed, but it is likely there will still be significant investment needed. Another possibility to be explored is if the participation levels could be significantly expanded by changing the focus of the credential from maintenance instructors only to all transit instructors. This possibility was mentioned during the Project Team’s presentation and discussion at NTI’s Transit Trainers’ Workshop. The operating side of transit receives a lot of attention, and it was suggested that including operating trainers would garner more organizational support of the program. While some changes in the core competency model would be needed, it would in large part apply to all instructors as is. Unfortunately, the research done on participation levels to this point focused solely on maintenance instructors, and it is unclear how much larger the full instructor population is and if the NTI participants correctly estimated the interest level. If this is explored further it may be the case that a significantly higher participation level could provide enough surplus revenue to amortize the significant up-front development costs. How- ever, because of the uncertainty, the analysis that follows assumes a program focused only on the maintenance instructor population.

70 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Participation Projections and Operating Cost Analysis For the transit trainer certification program to be sustainable, several critical items must be present: • Sufficient participation levels from transit trainers and agencies initially and over time. • Revenues from participants fully cover the long term costs of the organization(s) implementing the program. • Charges for certification are set to levels that are reasonable for agencies, and provide a clear ROI. Participation Estimates To determine the projected participation over time, the Project Team looked at three different populations identified in Task 1: current transit agency instructors (~600), projected annual new instructors (~40), and current mentors (~3,700). For incumbent instructors, the Project Team assumes that participation levels will be lower than participation levels for new instructors after the certification program is launched. This is due to a number of incumbent instructors being in the middle or latter part of their careers, and the likelihood that transit agencies may “grandfather” or otherwise not incentivize participation of current employees in the program in the same way as new employees. Based on these under- standings, the Project Team projected that over the first five years of the program, 20–40 percent of the instructor population would participate, but that 40–80 percent of each year’s new crop of instructors would begin the program. Mentors may benefit from portions of the certification program. The development of strong mentoring practices may help identify talent for future full-time instructors, improve the overall culture of training, and be key to the sustainability of the certification program. The Project Team estimated a steady population of 3,700 instructors, and that 6–10 percent will participate in some portion of the program each year. These assumptions provide the following projections over 10 years as shown in Table 5.2. Assumptions Applied to Revenue/Cost Projections It should be noted that Year 1 draws only from incumbent trainers; “new trainers” begin with Year 2. Also, after Year 5 the Project Team assumes that all of the present populations of trainers Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Instructor Participants High Projection 48 80 80 80 80 32 32 32 32 32 Medium Projection 36 60 60 60 60 24 24 24 24 24 Low Projection 24 40 40 40 40 16 16 16 16 16 Mentor Participants High Projection 370 370 370 370 370 370 370 370 370 370 Medium Projection 296 296 296 296 296 296 296 296 296 296 Low Projection 222 222 222 222 222 222 222 222 222 222 Table 5.2. Ten-year participant projections.

Business Plan 71 who will participate have participated and so there is a drop off at that point. However, the fixed costs will also be front loaded in the early years, so a smaller participation level is necessary for sustainability after the initial costs are covered. Although the courses are not assigned to a strict time frame in the competency model, for the purposes of projecting revenue the Project Team has assumed that students, on average, will move through the program over the course of three years. The Project Team has also assumed some attrition through the program. It is projected that 10 percent of those who begin will not proceed to the second year of courses and an additional 20 percent will not proceed to the third year. The team projected that of the 10 courses identified, participants will submit the equivalent course documentation for four of them and take the remainder directly administered through the program. Whether these participation levels are sufficient to sustain the program will depend on the costs charged and the variable and fixed costs to the implementing organization. The plan to achieve the necessary participation will be discussed later. Annual Operating Costs (Fixed and Variable) As noted earlier, depending on the structure chosen for delivering classes, there may be substantial up-front development costs for e-learning and other courseware development, and platforms for delivering courses remotely via video conferencing. This analysis focuses on ongoing fixed and variable operating costs. It will almost certainly be necessary for separate funding from agencies, other organizations, or the steering organization to be identified to cover the pre-program launch costs. Each year, there will be relatively fixed costs for a website, marketing of the program to agen- cies, the credentialing management system license and administration, and ongoing updates of the competency model. An initial analysis estimates that these costs will be in the range of $35,000–50,000 per year. A detailed projection is provided in Table 5.3. Other costs will be variable based on the number of participants and the attrition and progress of participants through the program. The main types of costs are per course offering for courses offered directly through the AO, and the review of equivalent courses, evaluation of portfolios and other deliverables to confirm that competencies have been achieved, and the evaluation of the final capstone project. The cost projection is $1,000 per offering of an 8-hour course via video conferencing, or $1,500 for courses offered in person. The primary driver of these costs is direct instructor time; other costs such as curriculum development and updating are included elsewhere. The number of offerings of the course needed was calculated by the projected participation, assuming a goal of eight enrollees per course offering, and assuming that half of participants would take the course directly through the certification program and half would submit an equivalent outside course. Review of portfolios and reflection papers is projected at $25 per course and $100 for the capstone project. Revenues To cover the administration costs, several fees would be charged to participants during the certification program: • Initial registration fee (proposed at $100). • Review of course documentation and portfolios for four Training Delivery courses: $200. • Review of course documentation and portfolios for four Instructional Design courses: $200.

72 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Parcipaon Parcipang Trainers (from Year 1 populaon) 48 48 48 48 48 0 0 0 0 0 Parcipang Trainers (from New Hires each year) 0 32 32 32 32 32 32 32 32 32 Parcipang Mentors 370 370 370 370 370 370 370 370 370 370 Fees/Income (Constant $ in Thousands) Cerficaon System Registraon (Charged at beginning to parcipang instructors) $100 4.8 8.0 8.0 8.0 8.0 3.2 3.2 3.2 3.2 3.2 Training Delivery Courses Mentoring Course (In Person) $250 92.5 92.5 92.5 92.5 92.5 92.5 92.5 92.5 92.5 92.5 Oral and Wrien Communicaon $250 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Adult Learning $250 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Delivering Instrucon $250 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Instruconal Design Courses Assessment and Process Analysis $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Instruconal Technology $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Lesson Plan Design $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Instruconal Material Development $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Program Design Courses Standards Based Training $250 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Program Evalua on and Management $250 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Curriculum Development $250 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Review of Course Documenta on and Porolios (Training Delivery Level) $200 9.6 16.0 16.0 16.0 16.0 6.4 6.4 6.4 6.4 6.4 Review of Course Documenta on and Porolios (Instruc onal Design Level) $200 0.0 8.6 14.4 14.4 14.4 14.4 5.8 5.8 5.8 5.8 Review of Course Documenta on and Porolios (Program Design Level) $150 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Review of Final Capstone Project $150 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Total Fees/Income 123.7 179.1 227.3 244.1 244.1 212.9 178.3 153.1 153.1 153.1 Table 5.3. Operating revenue vs. cost analysis of transit trainer and mentor certification program— high participation estimate.

Business Plan 73 Costs (Constant $ in Thousands) Note: These are recurring operang costs, both fixed and variable. There are other one me startup costs that will have to be invested and recovered over me or covered through other possible sources. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Fixed Costs (Overall) Updates for Task Analysis, Competency Model and Program Review (ongoing and major update every 5 yrs, incl. SME travel) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Marke ng to Agencies / ROI Analysis 10.0 10.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Public Website Maintenance 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Legal Costs (incl. insurance) 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 Creden al Management System License and Admin 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Total Fixed Costs 47.5 47.5 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 Variable Costs Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Training Delivery Courses Mentoring Course (In-Person) $1,500 46.5 51.0 51.0 51.0 51.0 51.0 51.0 51.0 51.0 51.0 Oral and Wrien Communicaon $1,000 6.0 10.0 10.0 10.0 10.0 4.0 4.0 4.0 4.0 4.0 Adult Learning $1,000 6.0 10.0 10.0 10.0 10.0 4.0 4.0 4.0 4.0 4.0 Delivering Instrucon $1,000 6.0 10.0 10.0 10.0 10.0 4.0 4.0 4.0 4.0 4.0 Instruconal Design Courses Assessment and Process Analysis $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Instruconal Technology $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Lesson Plan Design $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Instruconal Material Development $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Program Design Courses Standards-Based Training $1,000 0.0 0.0 5.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 Program Evaluaon and Management $1,000 0.0 0.0 5.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 Curriculum Development $1,000 0.0 0.0 5.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 Review of Course Documentaon and Por­olios (Training Delivery Level) ($25/person/course) $25 4.8 8.0 8.0 8.0 8.0 3.2 3.2 3.2 3.2 3.2 Review of Course Documentaon and Por­olios (Instruconal Design Level) ($25/person/course) $25 0.0 4.3 7.2 7.2 7.2 7.2 2.9 2.9 2.9 2.9 Review of Course Documentaon and Por­olios (Program Design Level) ($25/person/course) $25 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Review of Capstone Projects $100 0.0 0.0 3.4 5.6 5.6 5.6 5.6 2.2 2.2 2.2 Total Variable Costs 69.3 117.3 153.1 163.0 163.0 140.2 115.9 98.0 98.0 98.0 Total Costs 116.8 164.8 193.1 203.0 203.0 180.2 155.9 138.0 138.0 138.0 Annual Cost Excess/Shortage 6.9 14.2 34.2 41.1 41.1 32.7 22.5 15.1 15.1 15.1 Cumulave Reserve/Loss 6.9 21.1 55.4 96.5 137.6 170.3 192.7 207.9 223.0 238.1 Table 5.3. (Continued).

74 A National Training and Certification Program for Transit Vehicle Maintenance Instructors • Review of course documentation and portfolios for three Program Design courses: $200. • Review of final capstone project and issuing certification: $150. Total cost to agency or trainer for certification: $850. There will also be costs for taking the courses themselves. If a participant is taking an approved equivalent course from an outside provider, the charges will be paid directly to that provider. It is projected that a fee of $250 per course for those taking courses directly through the certification managing organization. 10-Year Operating Profit/Loss Projections Tables 5.3 to 5.6 show one year cost and revenue projections based on different assumptions. Table 5.3 assumes participation for mentors and instructors will follow the “High” level projection model. Under this level of participation and using the fees indicated. Under this model, there is a projected operating profit starting with Year 1 and an ongoing projected profit of $15,000 per year from Year 8 forward. Table 5.4 assumes participation follows the “Low” model. In this case there is an operating loss almost every year, and the program would not be sustainable without significant fee increases. However, those fee increases might further decrease participation, leading to a spiral downward. Participation must certainly come in above the low projections for the program to work, and a strong marketing program and understanding of the ROI among the agencies will be critically necessary to achieve the required participation. Table 5.5 takes the “Medium” level of participation and projects the necessary fees to break even. In this case only a slight increase to the charge for the mentor course (to $260) would provide fiscal stability, as the excess from the mentor course can subsidize the overall program. Finally, Table 5.6 projects the necessary participation level given the initial projected fees. The key takeaway here is that the sustainability of the program decreases with higher instructor participation unless the mentor participation increases by a similar amount. In the long term, participation of 32 instructors per year and 270 mentors per year would provide a small annual operating surplus. All of the numbers in these projections are very preliminary and have a wide margin of error. As even the most optimistic projections do not show a substantial operating margin, the implementation of the program in an efficient manner by a well-qualified flexible organization will be critical for success. A focus of upcoming meetings with SMEs will be to determine the reasonableness of these assumptions and what steps will be necessary to ensure the required participation levels. A significant part of the evaluation of the RFP responses should be the organization’s plan to achieve the necessary participation levels for sustainability. Summary of Projections The projected operating surpluses or losses (not including up-front development costs before Year 1) are shown in Table 5.7. These figures assume that all courses except mentor training are offered in an online, video conferencing format, that one half of courses are taken directly through the program, while the others are taken through equivalent outside courses, and that there are eight participants per course offering. All participants, regardless of where courses are taken, would be required to pay the full registration fee.

Business Plan 75 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Parcipaon Parcipang Trainers (from Year 1 populaon) 24 24 24 24 24 0 0 0 0 0 Parcipang Trainers (from New Hires each year) 0 16 16 16 16 16 16 16 16 16 Parcipang Mentors 222 222 222 222 222 222 222 222 222 222 Fees/Income (Constant $ in Thousands) Cerficaon System Registraon (Charged at beginning to parcipang instructors) $100 2.4 4.0 4.0 4.0 4.0 1.6 1.6 1.6 1.6 1.6 Training Delivery Courses Mentoring Course (In Person) $250 55.5 55.5 55.5 55.5 55.5 55.5 55.5 55.5 55.5 55.5 Oral and Wrien Communicaon $250 3.6 6.0 6.0 6.0 6.0 2.4 2.4 2.4 2.4 2.4 Adult Learning $250 3.6 6.0 6.0 6.0 6.0 2.4 2.4 2.4 2.4 2.4 Delivering Instrucon $250 3.6 6.0 6.0 6.0 6.0 2.4 2.4 2.4 2.4 2.4 Instruconal Design Courses Assessment and Process Analysis $250 0.0 3.2 5.4 5.4 5.4 5.4 2.2 2.2 2.2 2.2 Instruconal Technology $250 0.0 3.2 5.4 5.4 5.4 5.4 2.2 2.2 2.2 2.2 Lesson Plan Design $250 0.0 3.2 5.4 5.4 5.4 5.4 2.2 2.2 2.2 2.2 Instruconal Material Development $250 0.0 3.2 5.4 5.4 5.4 5.4 2.2 2.2 2.2 2.2 Program Design Courses Standards Based Training $250 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Program Evaluaon and Management $250 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Curriculum Development $250 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Review of Course Documentaon and Porolios (Training Delivery Level) $200 4.8 8.0 8.0 8.0 8.0 3.2 3.2 3.2 3.2 3.2 Review of Course Documentaon and Porolios (Instruconal Design Level) $200 0.0 4.3 7.2 7.2 7.2 7.2 2.9 2.9 2.9 2.9 Review of Course Documentaon and Porolios (Program Design Level) $150 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Review of Final Capstone Project $150 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Total Fees/Income 71.1 98.8 122.9 131.3 131.3 115.7 98.4 85.8 85.8 85.8 Table 5.4. Operating revenue vs. cost analysis of transit trainer and mentor certification program— low participation estimate. (continued on next page)

76 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Costs (Constant $ in Thousands) Note: These are recurring operang costs, both fixed and variable. There are other one me startup costs that will have to be invested and recovered over me or covered through other possible sources. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Fixed Costs (Overall) Updates for Task Analysis, Competency Model and Program Review (ongoing and major update every 5 yrs, incl. SME travel) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Markeng to Agencies / ROI Analysis 10.0 10.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Public Website Maintenance 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Legal Costs (incl. insurance) 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 Credenal Management System License and Admin 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Total Fixed Costs 47.5 47.5 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 Variable Costs Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Training Delivery Courses Mentoring Course (In Person) $1,500 28.5 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Oral and Wrien Communicaon $1,000 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 2.0 Adult Learning $1,000 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 2.0 Delivering Instrucon $1,000 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 2.0 Instruconal Design Courses Assessment and Process Analysis $1,000 0.0 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 Instruconal Technology $1,000 0.0 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 Lesson Plan Design $1,000 0.0 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 Instruconal Material Development $1,000 0.0 3.0 5.0 5.0 5.0 5.0 2.0 2.0 2.0 2.0 Program Design Courses Standards Based Training $1,000 0.0 0.0 3.0 4.0 4.0 4.0 4.0 2.0 2.0 2.0 Program Evaluaon and Management $1,000 0.0 0.0 3.0 4.0 4.0 4.0 4.0 2.0 2.0 2.0 Curriculum Development $1,000 0.0 0.0 3.0 4.0 4.0 4.0 4.0 2.0 2.0 2.0 Review of Course Documentaon and Por€olios (Training Delivery Level) ($25/person/course) $25 2.4 4.0 4.0 4.0 4.0 1.6 1.6 1.6 1.6 1.6 Review of Course Documentaon and Por€olios (Instruconal Design Level) ($25/person/course) $25 0.0 2.2 3.6 3.6 3.6 3.6 1.4 1.4 1.4 1.4 Review of Course Documentaon and Por€olios (Program Design Level) ($25/person/course) $25 0.0 0.0 1.3 2.1 2.1 2.1 2.1 0.8 0.8 0.8 Review of Capstone Projects $100 0.0 0.0 1.7 2.8 2.8 2.8 2.8 1.1 1.1 1.1 Total Variable Costs 39.9 63.2 84.5 89.5 89.5 78.1 63.9 55.0 55.0 55.0 Total Costs 87.4 110.7 124.5 129.5 129.5 118.1 103.9 95.0 95.0 95.0 Annual Cost Excess/Shortage 16.3 11.9 1.6 1.8 1.8 2.4 5.5 9.2 9.2 9.2 Cumulave Reserve/Loss 16.3 28.2 29.8 28.0 26.2 28.6 34.1 43.3 52.5 61.7 Table 5.4. (Continued).

Business Plan 77 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Parcipaon Parcipang Trainers (from Year 1 populaon) 36 36 36 36 36 0 0 0 0 0 Parcipang Trainers (from New Hires each year) 0 24 24 24 24 24 24 24 24 24 Parcipang Mentors 296 296 296 296 296 296 296 296 296 296 Fees/Income (Constant $ in Thousands) Cerficaon System Registraon (Charged at beginning to parcipang instructors) $100 3.6 6.0 6.0 6.0 6.0 2.4 2.4 2.4 2.4 2.4 Training Delivery Courses Mentoring Course (In Person) $260 77.0 77.0 77.0 77.0 77.0 77.0 77.0 77.0 77.0 77.0 Oral and Wrien Communicaon $250 5.4 9.0 9.0 9.0 9.0 3.6 3.6 3.6 3.6 3.6 Adult Learning $250 5.4 9.0 9.0 9.0 9.0 3.6 3.6 3.6 3.6 3.6 Delivering Instrucon $250 5.4 9.0 9.0 9.0 9.0 3.6 3.6 3.6 3.6 3.6 Instruconal Design Courses Assessment and Process Analysis $250 0.0 4.9 8.1 8.1 8.1 8.1 3.2 3.2 3.2 3.2 Instruconal Technology $250 0.0 4.9 8.1 8.1 8.1 8.1 3.2 3.2 3.2 3.2 Lesson Plan Design $250 0.0 4.9 8.1 8.1 8.1 8.1 3.2 3.2 3.2 3.2 Instruconal Material Development $250 0.0 4.9 8.1 8.1 8.1 8.1 3.2 3.2 3.2 3.2 Program Design Courses Standards Based Training $250 0.0 0.0 3.8 6.3 6.3 6.3 6.3 2.5 2.5 2.5 Program Evaluaon and Management $250 0.0 0.0 3.8 6.3 6.3 6.3 6.3 2.5 2.5 2.5 Curriculum Development $250 0.0 0.0 3.8 6.3 6.3 6.3 6.3 2.5 2.5 2.5 Review of Course Documentaon and Porolios (Training Delivery Level) $200 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Review of Course Documentaon and Porolios (Instruconal Design Level) $200 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Review of Course Documentaon and Porolios (Program Design Level) $150 0.0 0.0 3.8 6.3 6.3 6.3 6.3 2.5 2.5 2.5 Review of Final Capstone Project $150 0.0 0.0 3.8 6.3 6.3 6.3 6.3 2.5 2.5 2.5 Total Fees/Income 100.4 141.9 178.1 190.7 190.7 167.3 141.3 122.4 122.4 122.4 Table 5.5. Operating revenue vs. cost analysis of transit trainer and mentor certification program— medium participation estimate/adjusted pricing. (continued on next page)

78 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Table 5.5. (Continued). Costs (Constant $ in Thousands) Note: These are recurring operang costs, both fixed and variable. There are other one me startup costs that will have to be invested and recovered over me or covered through other possible sources. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Fixed Costs (Overall) Updates for Task Analysis, Competency Model and Program Review (ongoing and major update every 5 yrs, incl. SME travel) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Markeng to Agencies / ROI Analysis 10.0 10.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Public Website Maintenance 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Legal Costs (incl. insurance) 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 Credenal Management System License and Admin 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Total Fixed Costs 47.5 47.5 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 Variable Costs Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Training Delivery Courses Mentoring Course (In Person) $1,500 37.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5 40.5 Oral and Wrien Communicaon $1,000 5.0 8.0 8.0 8.0 8.0 3.0 3.0 3.0 3.0 3.0 Adult Learning $1,000 5.0 8.0 8.0 8.0 8.0 3.0 3.0 3.0 3.0 3.0 Delivering Instrucon $1,000 5.0 8.0 8.0 8.0 8.0 3.0 3.0 3.0 3.0 3.0 Instruconal Design Courses Assessment and Process Analysis $1,000 0.0 4.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 3.0 Instruconal Technology $1,000 0.0 4.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 3.0 Lesson Plan Design $1,000 0.0 4.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 3.0 Instruconal Material Development $1,000 0.0 4.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 3.0 Program Design Courses Standards Based Training $1,000 0.0 0.0 4.0 6.0 6.0 6.0 6.0 3.0 3.0 3.0 Program Evaluaon and Management $1,000 0.0 0.0 4.0 6.0 6.0 6.0 6.0 3.0 3.0 3.0 Curriculum Development $1,000 0.0 0.0 4.0 6.0 6.0 6.0 6.0 3.0 3.0 3.0 Review of Course Documentaon and Por€olios (Training Delivery Level) ($25/person/course) $25 3.6 6.0 6.0 6.0 6.0 2.4 2.4 2.4 2.4 2.4 Review of Course Documentaon and Por€olios (Instruconal Design Level) ($25/person/course) $25 0.0 3.2 5.4 5.4 5.4 5.4 2.2 2.2 2.2 2.2 Review of Course Documentaon and Por€olios (Program Design Level) ($25/person/course) $25 0.0 0.0 1.9 3.2 3.2 3.2 3.2 1.3 1.3 1.3 Review of Capstone Projects $100 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Total Variable Costs 56.1 89.7 120.3 129.3 129.3 110.7 91.4 78.0 78.0 78.0 Total Costs 103.6 137.2 160.3 169.3 169.3 150.7 131.4 118.0 118.0 118.0 Annual Cost Excess/Shortage 3.2 4.6 17.8 21.4 21.4 16.6 9.9 4.4 4.4 4.4 Cumulave Reserve/Loss 3.2 1.4 19.2 40.6 62.0 78.6 88.5 93.0 97.4 101.8

Business Plan 79 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Parcipaon Parcipang Trainers (from Year 1 populaon) 48 48 48 48 48 0 0 0 0 0 Parcipang Trainers (from New Hires each year) 0 32 32 32 32 32 32 32 32 32 Parcipang Mentors 270 270 270 270 270 270 270 270 270 270 Fees/Income (Constant $ in Thousands) Cerficaon System Registraon (Charged at beginning to parcipang instructors) $100 4.8 8.0 8.0 8.0 8.0 3.2 3.2 3.2 3.2 3.2 Training Delivery Courses Mentoring Course (In Person) $250 67.5 67.5 67.5 67.5 67.5 67.5 67.5 67.5 67.5 67.5 Oral and Wrien Communicaon $250 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Adult Learning $250 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Delivering Instrucon $250 7.2 12.0 12.0 12.0 12.0 4.8 4.8 4.8 4.8 4.8 Instruconal Design Courses Assessment and Process Analysis $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Instruconal Technology $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Lesson Plan Design $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Instruconal Material Development $250 0.0 6.5 10.8 10.8 10.8 10.8 4.3 4.3 4.3 4.3 Program Design Courses Standards Based Training $250 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Program Evaluaon and Management $250 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Curriculum Development $250 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Review of Course Documentaon and Porolios (Training Delivery Level) $200 9.6 16.0 16.0 16.0 16.0 6.4 6.4 6.4 6.4 6.4 Review of Course Documentaon and Porolios (Instruconal Design Level) $200 0.0 8.6 14.4 14.4 14.4 14.4 5.8 5.8 5.8 5.8 Review of Course Documentaon and Porolios (Program Design Level) $150 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Review of Final Capstone Project $150 0.0 0.0 5.0 8.4 8.4 8.4 8.4 3.4 3.4 3.4 Total Fees/Income 98.7 154.1 202.3 219.1 219.1 187.9 153.3 128.1 128.1 128.1 Table 5.6. Operating revenue vs. cost analysis of transit trainer and mentor certification program— break even participation level. (continued on next page)

80 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Costs (Constant $ in Thousands) Note: These are recurring operang costs, both fixed and variable. There are other one me startup costs that will have to be invested and recovered over me or covered through other possible sources. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Fixed Costs (Overall) Updates for Task Analysis, Competency Model and Program Review (ongoing and major update every 5 yrs, incl. SME travel) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Markeng to Agencies / ROI Analysis 10.0 10.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Public Website Maintenance 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Legal Costs (incl. insurance) 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 Credenal Management System License and Admin 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 Total Fixed Costs 47.5 47.5 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 Variable Costs Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Training Delivery Courses Mentoring Course (In Person) $1,500 34.5 37.5 37.5 37.5 37.5 37.5 37.5 37.5 37.5 37.5 Oral and Wrien Communicaon $1,000 6.0 10.0 10.0 10.0 10.0 4.0 4.0 4.0 4.0 4.0 Adult Learning $1,000 6.0 10.0 10.0 10.0 10.0 4.0 4.0 4.0 4.0 4.0 Delivering Instrucon $1,000 6.0 10.0 10.0 10.0 10.0 4.0 4.0 4.0 4.0 4.0 Instruconal Design Courses Assessment and Process Analysis $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Instruconal Technology $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Lesson Plan Design $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Instruconal Material Development $1,000 0.0 6.0 9.0 9.0 9.0 9.0 4.0 4.0 4.0 4.0 Program Design Courses Standards Based Training $1,000 0.0 0.0 5.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 Program Evaluaon and Management $1,000 0.0 0.0 5.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 Curriculum Development $1,000 0.0 0.0 5.0 7.0 7.0 7.0 7.0 3.0 3.0 3.0 Review of Course Documentaon and Porolios (Training Delivery Level) $25 4.8 8.0 8.0 8.0 8.0 3.2 3.2 3.2 3.2 3.2 Review of Course Documentaon and Porolios (Instruconal Design Level) $25 0.0 4.3 7.2 7.2 7.2 7.2 2.9 2.9 2.9 2.9 Review of Course Documentaon and Porolios (Program Design Level) $25 0.0 0.0 2.5 4.2 4.2 4.2 4.2 1.7 1.7 1.7 Review of Capstone Projects $100 0.0 0.0 3.4 5.6 5.6 5.6 5.6 2.2 2.2 2.2 Total Variable Costs 57.3 103.8 139.6 149.5 149.5 126.7 102.4 84.5 84.5 84.5 Total Costs 104.8 151.3 179.6 189.5 189.5 166.7 142.4 124.5 124.5 124.5 Annual Cost Excess/Short age 6.1 2.7 22.7 29.6 29.6 21.2 11.0 3.6 3.6 3.6 Cumulave Reserve/Loss 6.1 3.4 19.4 49.0 78.6 99.8 110.7 114.4 118.0 121.6 Table 5.6. (Continued).

Business Plan 81 The numbers show that, if the “medium level” of participation can be achieved and the other participation assumptions hold valid, the program can be sustainably offered. However, the margins are always fairly small and the potential AO will always be in a somewhat precarious position where a small change in demand or costs will result in an operating loss. Even at a high level of participation, the projected cumulative reserve over 10 years is not likely to attract an organization to invest in the up-front development costs. An ongoing commitment of the industry and the steering committee will be necessary for the program to be implemented. Making the Business Case to Transit Organizations— Impact and Potential ROI of Instructor Training and Certification Understanding that agencies will need to make significant investments to support the program in terms of paying for registration fees and allowing instructors the time needed away from work to complete the program, it is essential that agency managers value the outcome. When it comes to measuring the impact and ROI of an instructor training, development, and certification program, one question becomes essential: How much does a transit agency benefit from technical training and how is that benefit enhanced by skilled instructors? Research shows that in both cases investment in technical training pays dividends. Transit Technical Training Makes a Difference A study aimed specifically at transit calculated significant gains regarding ROI from technical workforce training (Transportation Learning Center 2010b). Research conducted at the Capital District Transportation Authority (CDTA), Albany, NY, showed that as a result of training provided under a special program: • Average test scores improved by 43 percent. • Some test scores improved by 70 percent. • Miles between breakdowns improved by 18 percent. • Bus spare ratio fell from 20 percent to 13 percent. • More maintenance repair work stayed in-house. • Work culture among technicians also improved. In total, 23 classes developed in-house by CDTA instructors were provided to 202 students over a one year period. The training addressed both basic and advanced technology subjects including engines, transmissions, hydraulics, and preventive maintenance. The results were impressive. A true measure of an agency’s maintenance program is to keep vehicle defects to a minimum. Defects left unattended lead to breakdowns, passenger interruptions, and safety concerns. Fortunately for the effort to measure ROI at CDTA, the agency has an annual fleet inspection 10 year cumulative reserve/(loss) Long-term annual reserve/(loss) (Year 8 and later) Low Participation -$61,700 -$9,200 Medium Participation $101,800 $4,400 High Participation $238,100 $15,100 Table 5.7. Operating surpluses or losses.

82 A National Training and Certification Program for Transit Vehicle Maintenance Instructors conducted by an independent contractor to measure overall maintenance efficiency. One activity is to inspect a percentage of the bus fleet on an annual basis and itemize the number of defects found. After conducting the extra training, the average number of per-bus defects at CDTA fell from 8.4 to 5.9 percent, an impressive 30 percent improvement. When the defect reduction was compared to specific training classes given through the program, the results were even more impressive. Regarding engine defects for example, where five training classes were provided, the number of defects in this critical category fell 44 percent. The training at CDTA also led to the reduction of outsourcing, a practice where vendors perform certain repair and maintenance work because the agency’s own technicians lack the required technical knowl- edge and ability. The practice brings with it many disadvantages. The primary disadvantage is that extensive outsourcing makes the agency dependent on others to do much of their work. As a result, costs and scheduling cannot be controlled. Such was the case with CDTA: lack of skills was making the agency dependent on others to do much of the critical engine and transmission work. Following training in these specific areas, however, the agency was able to bring 50 percent of this work back in-house and make the repairs themselves. Based on interviews with 20 main- tenance personnel, the ability to perform work in-house combined with the enhanced skills made possible by the training has re-energized the workforce, improved working relations, and estab- lished a “can do” attitude throughout the maintenance department. Training ROI in Pennsylvania The transit ROI study also included the benefits derived from over 11,000 maintenance training opportunities provided to various transit agencies in Pennsylvania. In this example, results of the technical training show a return of five to 12 times the training investment. The SEPTA, the largest agency participating in the training program, demonstrated several quantifiable gains derived through the training. In the area of mean distance between failures (MDBF), an indication of in-service vehicle reliability, the research compared SEPTA’s bus garages that did not receive any preventive maintenance (PM) training to those garages that did receive training. Following PM training where technicians were taught to identify and repair defects before they result in a mechanical failure, MDBF showed improvements each month with up to 1,797 more miles traveled between failures, or 39 percent improvement in miles driven between failures. This translates to fewer passengers being inconvenienced by buses that fail in service, thereby improv- ing the agency’s performance and public image. At a smaller transit agency in Pennsylvania where technicians lacked essential electrical skills, specialized training led to a sharp reduction in charging system related failures. Prior to taking these classes, many technicians were replacing perfectly good batteries because of their inability to properly diagnose charging system faults. Following the training, battery costs were reduced 26 percent. Another key measurement in bus maintenance is the ratio between scheduled maintenance events where activities are accomplished as planned service events, and unscheduled maintenance where repair jobs are usually the result of breakdowns. It is more advantageous to accomplish repairs while the vehicle is receiving scheduled maintenance than having to chase unscheduled repairs where vehicle downtime is not anticipated. Following the training provided to SEPTA technicians, unscheduled maintenance activities fell from 51 percent to 42 percent of the total maintenance activities. The reduction of unscheduled maintenance is a strong indicator of improved equipment performance, which generates cost savings from not having so many dis- ruptive and costly breakdowns and unscheduled overtime. The time and effort spent on BMT at all skill levels also produced impressive improvements in parts and labor cost reduction in many of SEPTA’s major maintenance/repair categories.

Business Plan 83 Figure 5.1 showcases an example of such savings. A PM job that once cost $114 in labor and materials now cost only $82 after four years of training because of improved skill levels, a result of improved diagnostic abilities and an overall reduction in the time needed to make repairs. SEPTA has saved a total of $8,194,000 on bus PM jobs due to its training initiatives. A broader cost/benefit analysis shows that SEPTA’s training investment has produced impressive financial gains. Figure 5.2 summarizes the total savings from reduced labor time and materials needed to accomplish maintenance jobs at SEPTA throughout the training period. As illustrated in Figure 5.2, annual savings in all bus maintenance/repair categories rose rapidly from $3.6 million in 2002 (the first year of Keystone) to $11 million in 2005. Understanding that calculating the effect of training is not an exact science, the study estimated that SEPTA’s investment of $2,625,127 to train its bus maintenance workforce over a four-year period led to a combined cost savings of between $10 million and $22 million. The savings in vehicle maintenance, repair, and bus capital costs provides solid evidence that investment in training does provide financial benefits. Instructor Training and Development Makes a Difference: Research Evidence It’s commonly understood that highly proficient teachers and instructors do make a difference when it comes to student achievement. Unfortunately, there is no known ROI study that quantifies instructor effectiveness in a transit maintenance environment. However, a study conducted by the ROI Institute, Inc. regarding the impact of instructor development on student retention and corresponding ROI in an automotive training environ- ment produced impressive findings (Imagine America Foundation 2010). The research was conducted at a campus of UTI, a provider of technical training for students seeking careers as automotive, marine and heavy-duty truck technicians. UTI is featured in the Best Practices chapter of this project. Figure 5.1. Average labor & parts cost and annual savings—SEPTA bus PM jobs.

84 A National Training and Certification Program for Transit Vehicle Maintenance Instructors The ROI study focused on measuring the impact of a comprehensive faculty development program provided to UTI by the Center for Excellence in Education (CEE), a career college employee development and performance improvement initiative. Conclusions from the study found that the CEE program had a positive effect on UTI instructors and the students they taught. Seventy-nine percent of the instructors reported their teaching performance had been enhanced as a result of the program, improving their ability to: • Incorporate multiple teaching styles to better suit a diverse class; • Develop more ways to make presentations; • Involve students in classroom teaching to help learners be more active; and • Increase listening skills to hear students’ concerns. After isolating the effects of the program, converting the measures to monetary value, and identifying the fully loaded costs, the result was a positive ROI of 517 percent for UTI. Enhanced instructor skills contributed to an improvement in student retention and the number of additional courses taken by the students because of the higher quality instruction they received. Additionally, there were notable intangible benefits of the program, including job satisfaction, faculty career development, and student satisfaction. In addition to the UTI study, there is anecdotal evidence from several technicians whose careers have benefitted from instructors that made a difference. Michele Winn, a woman working as an automotive technician, is one example. She credits the instructors at a technical school that she attended for helping her to achieve a perfect 4.0 grade average and land a well-paying and Total Labor and Parts Savings in Bus Maintenance/Repair Categories Rose Rapidly since the Start of Keystone Training $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 Fiscal Years A nn ua l S av in gs Accident $187,000 $163,000 $187,000 $329,000 Capitalization (Overhaul) $2,461,000 $4,566,000 $2,628,000 $2,320,000 Inspection Repairs $0 $0 $0 $3,140,000 Operator Report $32,000 $68,000 $142,000 $138,000 Overhaul $0 $184,000 $356,000 $341,000 Preventive Maintenance $827,000 $1,613,000 $2,615,000 $3,139,000 Running Repairs $0 $326,000 $586,000 $1,021,000 Service Failure $5,000 $0 $197,000 $540,000 Vandalism $35,000 $16,000 $34,000 $64,000 Warranty $32,000 $0 $3,000 $64,000 FY02 07/01-06/02 FY03 07/02-06/03 FY04 07/03-06/04 FY05 07/04-06/05 $3,579,000 $6,748,000$6,936,000 $11,096,000 Figure 5.2. Total labor and parts savings—SEPTA maintenance jobs.

Business Plan 85 satisfying job. The instructors at this particular technical school provided just enough classroom instruction to prepare students for intensive hands-on education, combining theory and practice in a way that engaged students and prepared them for real-world job experiences. In the article, “The Value of the Maintenance Instructor” (Chamberlin 2010), an aircraft mechanic reflects back on the instructors that made a difference in his career. Over the years Chamberlin observed many instructors in action. As he notes, most were just average, a few were really good, and some had no business being in the profession. The reason he gives for the high number of poor technical instructors is that rarely are there any requirements for them to have received formal training in teaching skills. Chamberlin goes on to contrast the many investments being made in training technologies such as e-learning with the lack of investment being made with regard to instructor training and preparation. As he notes, the training aids are only valuable tools when used correctly by a skilled instructor. Chamberlin asks: “What’s really important in your training program? Is it having the latest technological advances in training aids? Or is it selecting good instructors and providing them with the tools they need to accomplish their jobs?” Hopefully, transit agencies can have both. Direct evidence pointing to the benefits offered by quality instructors in more traditional teaching settings is plentiful. In the book, Teacher Quality: Understanding the Effectiveness of Teacher Attributes, by Jennifer King Rice, the author proves that teacher quality does in fact matter (Rice 2003).The book contends that the teacher is the most important school-related factor influencing student achievement. The publication lends credibility to best practices findings that experience has a positive effect on teacher effectiveness, especially when it comes to “learn-by- doing” instruction. The research also validates this effort in this project to certify transit main- tenance instructors because it suggests that teachers who are certified have an increased impact on student achievement. The study goes on to state that teaching is a complex activity influenced by many elements of teacher quality. The research suggests that investing in teachers can make a difference in student achievement. In a conventional school setting it is estimated that the difference between having a good teacher and a bad one can exceed one grade-level equivalent in annual achievement growth. The book points to several studies that argue that the single most important factor affecting student achievement is the teacher, and the effects of teachers on student achievement are both additive and cumulative. Further, the studies contend that lower-achieving students are the most likely to benefit from increases in teacher effectiveness. This is especially important in today’s transit environment where many transit technicians may have been subjected to poor quality training in the past. A study conducted by the Australian Council for Educational Research Annual Conference, Building Teacher Quality (Hattie 2003), also provides a direct correlation between teacher quality and student accomplishment. It shows that the students themselves account for about 50 percent of the variance of achievement. It’s what students bring to the table that predicts achieve- ment more than any other single variable. Of the remaining 50 percent, teachers account for 30 percent of the variance with schools, principals, and peer effects accounting for the remainder. The study identified five major characteristics of excellent teachers as those with the ability to: • Identify essential representations of their subject, • Guide learning through classroom interactions, • Monitor learning and provide feedback, • Attend to affective attributes, and • Influence student outcomes.

86 A National Training and Certification Program for Transit Vehicle Maintenance Instructors Taken together, the sources provided here and elsewhere conclude that quality teachers are a critical determinant of student achievement. There is clear evidence to suggest that technicians are in a better position to perform their jobs when provided with effective instructors. Certification Improves Instructor Employment Opportunities While research clearly shows that providing instructors with enhanced teaching skills contributes significantly to student achievement, there is also evidence that instructors themselves benefit from attaining certifications. In the article, “Does Your Resume Need New Acronyms?”, the author strongly indicates that in today’s business climate, anything that differentiates job candidates from the crowd is critical to building a substantial career (Zupek 2009). Certifications show employers that job candidates are dedicated and committed to a particular profession and they are credible and knowledgeable about current trends and best practices in their field. The article indicates that certifications are especially beneficial when coupled with an appropriate number of years of experience in a given field of work. A scan of institutions that offer instructor and teacher certifications points to several other benefits: • Certification ensures that instructors are trained to consistent skill levels. • Certified people are more employable; hiring managers believe certified individuals are more productive than their non-certified counterparts. • Certificated people are typically more productive. • Certification reduces downtime because staff members have the skills needed to cope with issues as they arise. • Gaining certifications typically results in increased salaries. • Certification ensures that knowledge has been retained. • Certification results in lower staff turnover. The National Training and Certification Program seeks to improve and verify instructor skills with the intent of not only improving the quality of training delivery to students to make them more proficient, but to elevate the position of maintenance instructor within the transit community. Examples provided in other occupations indicate that these benefits can be achieved for transit maintenance technicians and instructors. Recommended Procurement Language At the interim meeting, the panel directed the Project Team to recommend language for transit agencies to include in future vehicle procurement contracts specifying vendor instructor qualifications. APTA’s Standard Bus Procurement Guidelines document already contains a section on training. It is proposed that the relevant section be changed to read: The Contractor shall have at least one qualified instructor certified through the National Training ICP who shall be available at the Agency’s property for [insert number] calendar days between the hours of [insert starting time] and [insert closing time] per month for [insert number] months prior to, and [insert number] months after, acceptance of the first vehicle. Instructor(s) shall conduct schools and advise the personnel of the Agency on the proper operation and maintenance of the equipment. The Contractor also shall supplement classroom instruction with hands-on training and provide visual and other teaching aids (such as manuals, slide presentations, literature and other teaching aids) designed to engage students for use by the Agency’s own training staff and which shall become the property of the Agency.

TRB’s Transit Cooperative Research Program (TCRP) Report 178: A National Training and Certification Program for Transit Vehicle Maintenance Instructors provides a proposed national program structure and plan for training and certifying transit bus and rail maintenance instructors. The report also provides best practices used in the public and private sectors to prepare and certify technical instructors, as well as the attributes and instructional delivery methods found most effective for maintenance instructors.

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