As a start-up, you will need a business plan. For example, if you are seeking a loan then you need to show your plan to the bank. You also need to show the plan to an investor. Business plans are helpful because they force you to step back and critically analyse your business.
You should consider your target market, the products or services you offer, and your projected finances. Writing a business plan is not difficult, although it will require considerable research and planning.
Writing a Business Plan
Describe your mission and objectives.
Under the heading “Company Description” you should describe your company in more detail. This section displays some of the information provided in the executive summary. For example, you might refer to the following:
- Your mission. What is your driving goal every day? Don’t just write, “Make money.” Identify how you will make money. For example, you might write: “Our mission is to provide residents of the Lakeview neighbourhood with the best day spa experience in Chicago’s Near North Side. We’re committed to providing value and quality in a fun environment that’s never been expected. Cannot be imposed.”
- Your goals. For example, a day spay might have the following goal: “Attract a minimum of 35 clients each day in the first year of operation.” Make your goals as concrete as possible.
- Industry description. State whether the industry is growing or is poised for growth in the short and long term.
- Factors that will drive your success. How will you differentiate yourself? For example, “You’ll set yourself apart from the pack based on the in-depth experience of owning a day spa in Seattle for ten years running all day. This experience includes becoming familiar with successful marketing techniques and analysing trends.” “
- Your legal form. Are you a sole proprietorship, partnership, limited liability company (LLC), or corporation? Also explain why you chose this form.
Discuss your industry.
Include a section titled “Industry Analysis” and talk about your industry at a high level. For example, discuss whether the overall industry is growing and how fast. Also talk about trends in consumer preferences. You’ll need to do research, so go to the library and ask your librarian for help finding information about the industry.
- You can search for industry information in other places. For example, talk to people in your industry at trade shows. Search online too. Many industries have trade associations, which have websites with information.
- For example, when analysing the day spa industry, you might want to talk about how it is growing as more high-income men are moving into urban areas. (if this is true).
- By analysing the industry, you gain insight into your potential target market and how you can reach them.
Identify your target market.
Although it may be nice to think that the whole world is your market, businesses usually serve one place. You need to identify that niche. For example, think about the following characteristics of your target market:
- Age: What is the average age of your potential customer? If you don’t know, visit similar businesses and note the age of the customers.
- Gender: Will men or women—or both—predominately use your products or services?
- Place: Generally, your market will be located near your business. However, if you have a web-based business, your target audience may not have any geographic boundaries.
- Income level.
- Profession: For example, a day spa may target stressed white-collar professionals.
- Education level: There is often a link between education, income and occupation – though not always. For example, a discount bookstore may target an educated audience that has low income.
With whom will you compete? Know your competitors. For most businesses, your competitors will be located nearby. However, if you have an Internet-based business, your competitors can be any business offering similar products or services.
- To find competitors, look in the phone book and do a general Google search. Be sure to read their website and get down to business.
- If you’re opening a restaurant, you’ll want to see a sample menu, as well as hours of operation.
- Also identify indirect competitors. For example, a day spa has more competition than other spas. You also compete with a business that offers relaxation, such as a massage parlor or meditation centre.
Once you’ve studied your competition, state in your business plan how you’ll stack up. You can create a chart, which should include the following:
- Your competitor’s name.
- What do you offer that they don’t? Think about products and services, but also think about location, ease of ordering, etc. What will make the consumer experience different in your business?
- What do they offer you don’t? Identify why you don’t offer their products or services. For example, when you’re only focusing on one, they may be serving several niches. Alternatively, they may have a favourable location.
Learn in detail what products or services you will offer and how you will offer them. For example, if you’re starting a pizza shop, you’ll want to include the following:
- Whether you will sell pizza by the slice, as a whole pie, or both?
- How big will your pizza be?
- What Toppings Can Your Customer Offer?
- If you will have take-out and delivery options
- What other foods will be sold?
Prepare your marketing plan.
After you have identified your market, you should explain how you will reach it. Consider the following and include it in your business plan under the Marketing section:
- What type of advertising or promotion will you use? How often will you use paid promotions?
- What promotion would you use other than paid advertising? For example, you can use social media, professional networks, etc.
- Will you create a logo and use it on cards, letterhead, websites, etc.?
- How big will your promotional budget be?
Explain your daily tasks.
Give your reader an idea of how many people will be working for the start-up. You must identify their positions. If you have 10 or more employees, create an organizational chart. This chart should identify the hierarchy in the business.
- State how much you expect to pay each employee in the first three years of your business.
- Also name your professional support, such as your business attorney, accountant, and insurance agent. Professionals are independent contractors that you use but do not employ. Calculate how much you expect to spend on each professional.
If you’re running a sole proprietorship, it’s easy. However, larger start-ups will need to identify who will run the business and provide little information about their background. For example, you should identify the daily manager, support staff, etc.
- You might write: “Lisa Jones is the sole owner of You All Day and will run the day-to-day operations. As a certified massage therapist, she has worked with the Relax! Chain of day spas in the Greater Seattle area for ten years. A former an accountant, Lisa has an MS in Accounting from the University of New Hampshire and worked as a CPA for some time before going into the spa business.
- If you are seeking a loan, include a resume for each owner. You can place them in the appendix at the end of the document.
Provide personal financial details.
As a start-up, banks will look at your personal credit history and financial status when deciding whether to grant a loan or not. Accordingly, you must include information for each business owner.
- You should create professional-looking financial statements using spreadsheets.
- You need to gather a lot of information to prepare financial statements. For example, you will need information about your assets, investments and personal loans.
- You might want to get a free copy of your credit report and review it as you draft your business plan.
What to Provide in a Business Plan
Explain your start-up costs.
You have to research how much it costs to start your business. If you’ve built a similar business before, you can rely on that information. If not, you should talk to other business owners. Be conservative when estimating start-up costs. Generally, everything will cost more than you expect.
- Common start-up costs include insurance, licenses, equipment, advertising and employee expenses.
- Also identify the source of start-up capital. For example, if your start-up has three initial owners, state how much each is contributing to the business and their ownership percentage.
- If you need financing, state how much. Include the terms of any proposed loans.
Forecast profit for the first year.
As a start-up, you have no financial information you can provide. Accordingly, you need to estimate your sales based on your research, industry data and marketing strategies. You should provide “best case” and “worst case” scenarios. Use a spreadsheet to make your forecasts look professional.
- You will need to make some assumptions to come up with a sales forecast. You should make these assumptions clear in your business plan.
- For example, you might write, “We recognize that there is a continuing interest in day spas in the Chicago area.”
- Another assumption is the overall health of the economy. “Although Chicagoland’s economy has grown more slowly than other areas of the country, we believe that Chicago’s economy will grow at par with other large metropolitan areas in the coming decade.”
- You can also include a four-year projection, although this is optional.
Identify the expected cash flow.
You need cash to make payments and cover anything unexpected. You will need positive cash flow, otherwise your business may go down. As part of your cash flow analysis, you need to estimate incoming cash each year and how much cash is spent on expenses such as sales tax, bill payments and purchasing property.
- Also talk about how you will build your cash reserves. For example: “In addition to normal cash flow, we will focus on obtaining sufficient cash reserves for emergencies. These reserves include a line of credit with a bank, which we can use when business slows.” We will also invest additional cash in certificates of deposit in our bank.
Your “break even” point is the moment your income equals all of your business costs. There are several business costs that you will need to account for:
- Fixed costs: These do not vary based on your sales volume. For example, your rent, employee salary and insurance are fixed costs.
- Variable costs: These fluctuate based on your sales and include shipping, inventory, and manufacturing costs.