Developing BUSINESS PLAN

Overview
The importance of planning should never be overlooked. For a business to be successful and profitable, the owners and the managing directors must have a clear understanding of its customers, its strengths, and its competition, and the foresight to plan for future expansion. Whether yours is a new business or an existing business considering expansion, take the time to create an extensive business plan. It can provide you with insight into your business, and serve as a powerful financing proposal.
The finished project will be an operating tool to help manage your business and enable you to achieve greater success. A strong plan also serves as an effective communication tool for financing proposals.

Why write a business plan
There are five major reasons:

1. The process of putting the plan together is important; it forces the individual constructing the report to look at the business in an objective, critical and unbiased manner. The process of constructing a business plan can be a strong reality check. It helps to focus ideas and serves as a feasibility study of the business's chances for success and growth.
2. The finished report serves as an operational tool to define the company's present status and future possibilities.
3. It can help you to manage your business and prepare you for success. You may note needs that may have been overlooked, or spot problems and nip them before they escalate.
4. It is a strong communication tool for your business. It defines your purpose, your competition, your management and personnel.
5. The finished business plan can provide the basis for your financing proposal.

Who should write the business plan
The owner of the business should write the plan. It is you that know the most about the business; you have the most to gain or lose. Consultants can be hired to assist you in the process of formulating a business plan, but you must do a majority of the work.

Elements of a Business Plan
Ideal length of the plan is 50 pages, although depending on the need for detail, the overall plan can range from 40 to more than 100 pages (including appendix).

Business Plan Outline
I Summary
II Business Description Segment
a.General description of the venture (product or service)
b.Industry background
c.Company history or background
d.Goals/potential of the venture and milestones (if any)
e.Uniqueness of the product or service

III Marketing Segment
a. Research and analysis
1. Target market (customers)
2. Market size and trends
3. Competition
4. Estimated market share
b. Marketing plan
1. Marketing strategy: sales and distribution
2. Pricing
3. Advertising and promotions
IV Manufacturing Segment
a. Location analysis
b. Production needs: facilities and equipment
c. Suppliers/transportation factors
d. Labour supply
e. Manufacturing cost data

V Management Segment
a. Management team: key personnel
b. Legal structure: stock agreements, employment agreements, ownership, etc
c. Board of directors, advisers, consultants, etc.

VI Critical-Risks Segment
a. Potential problems
b. Obstacles and risks
c. Alternative courses of action

VII Financial Segment
a. Financial forecast
1. Profit and loss; 2. Cash flow; 3. Break-even analysis; 4. Cost controls
b. Funding sources and usage
c. Budgeting plans
d. Financing stages

VIII Milestone Schedule Segment
a. Timing and objectives
b. Deadlines/milestones
c. Relationship of events

IX Appendix and/or Bibliography

EXPLANATION

I. SUMMARY

Many people who read business plans (bankers, investors) like to read a summary of the plan that features its most important parts. A summary gives a brief overview of what is to follow, helps put all of the information into perspective, and should be no longer than three pages.
Summary should be written only after the entire business plan has been completed. In this way particular phrases or descriptions from each segment can be identified for inclusion in the summary.
Since summary is the first, and some- times the only, part of a plan read, it must present the quality of the entire report. The summary must be a clever snapshot of the complete plan.
First pages of business plan should be a persuasive executive summary

Summary should include:

1. A brief description of the company's history.
2. The company's objectives.
3. A brief description of the company's products or services.
4. The market that the business will compete in.
5. A persuasive statement as to why the business will succeed, discussing the business's competitive advantage.
6. Projected growth for the company and its market.
7. A brief description of the key management team.
8. A description of funding requirements, including a time-line and how the funds will be used.

IMPORTANT
Summary

• No more than three pages
• This is the most crucial part of your plan because it must capture the reader's interest.
• What, how, why, where, etc., must be summarized.
• Complete this part after the finished business plan has been written

II. BUSINESS DESCRIPTION SEGMENT

Name of the venture should be identified, with any special significance related (c.a., family name, technical name, etc.). It is important for the reader to thoroughly understand the product or services you currently provide or plan on providing. It is critical that you explain this section in layman's terms to avoid confusion. Do not overwhelm the reader with technical explanations or industry jargon that they will not be familiar with.
Industry background should be presented in terms of current status and future trends. It is important to note any special industry developments that may affect the plan. If the company has an existing business or franchise, this is the appropriate place to discuss it.
New venture should be thoroughly described alone, with its proposed potential. All key terms should be defined and made comprehensible. Functional specifications or descriptions should be provided. Drawings and photographs also may be included.
It is important to emphasize the competitive advantage your product or service has over the competition. Or if you are entering a new market, explain why there is a compelling need for your offering. If appropriate, discuss any patents, copyrights and trademarks that your company currently owns or has recently applied for. Discuss any confidential and non-disclosure protection that your company has secured.

Other questions that should be answered in this section include:

1. Is your product or service already on the market or is it still in the research and development stage?
2. If you are still in the development stage, what is the rollout strategy or timeline to bring the product to market?
3. What makes your product or service unique? What competitive advantage does the product or service have over its competition?
4. Can you price the product or service competitively and still maintain a healthy profit margin?

IMPORTANT
Business Description Segment

1. The name of the business
2. A background of the industry with history of the company (if any) should be covered here.
3. The potential of the new venture should be described clearly.
4. Any unique or distinctive features of the venture should be spelled out.

CHECK LIST
Business Description Segment

1. What type of business are you planning ?
2. What products or services will you sells ?
3. What type of opportunity is it (new, pat-time, expansion, seasonal, year round)?
4. Why does it promise to be successful ?
5. What is the growth potential ?
6. What uniqueness exists?

III. MARKETING SEGMENT
Investors look for management teams with a thorough knowledge of their target market.

1. If you are launching a new product, include your marketing research data.
2. If you have existing customers, provide an analysis of who your customers are, their purchasing habits, and their buying cycle.

This section of the plan is extremely important, because :

1. If there is no need or desire for your product or service there won't be any customers.
2. If a business has no customers, there is no business.This section of the plan should include:

• A general description of your market.
• The niche you plan on capitalizing on and why.
• The size of the niche. Include supporting documentation.
• A statement and supporting documentation as to why you believe there is a need for your product or offering by this market.
• What percentage of the market do you project that you can capture?
• What is the growth potential of the market? Include supporting documentation.
• Will your share of the market increase or decrease as the market grows?
• How will you satisfy the growth of the market?
• How will you price your goods and/or services in this growing, competitive market?

Marketing Strategy
Once you have identified what your market is, you'll need to explain your strategy for reaching the market and distributing your product or service. Potential investors will look at this section carefully to make sure there is a viable method to reach the target market at a price point that makes sense.
Analyze your competitors' marketing strategy to learn how they reach the market. If their strategy is working, consider adopting a similar (but improved) plan. Work on creating an innovative plan that will clearly position your product or service in the minds of your potential customers. The most effective marketing strategies typically integrate multiple media or promotional strategies.
The following are promotional media to consider :
- TV , Radio
- Web
- Direct mail
- Public relations
- Promotional materials
- Telephone sales
- One-on-one sales
- Strategic alliances
- Trade shows

Developing an innovative marketing plan is critical to your company's success. Investors look favorably upon creative strategies that will put your product or service in front of potential customers. They will be less than impressed by mindlessly throwing money at the problem. Once you have identified how you will reach the market, discuss in detail your strategy for distributing the product or service to your customers.


IMPORTANT
Marketing Segment

1. Market studies should be used and disclosed.
2. Identify target market, market position, and market share.
3. Evaluate all competition and specifically cover why and how you will be better than the competitors.
4. Identify all market sources and assistance used for this segment.
5. Demonstrate pricing strategy, since your price must penetrate and maintain a market share to produce profits.
6. Identify your advertising plans with cost estimates to validate the proposed strategy.

CHECK LIST
Marketing Segment

1. Who are your potential customers?
2. How big is the market?
3. Who are your competitors? How are their businesses prospering?
4. How will you promote sales?
5. What market share do you anticipate?
6. How will you price your product or service?
7. What advertising and promotional strategy are you using ?

IV. MANUFACTURING SEGMENT
Manufaturing segment always should begin by describing, the location of the new venture. The chosen site should be appropriate in terms of labour availability, wage rate, proximity to suppliers and customers, and community support. In addition, local taxes and zoning requirements should be sorted out, and the support of area banks for new ventures should be touched on.
Production needs should be discussed in terms of the facilities required to handle the new venture (plant, warehouse storage, and offices) and the equipment that needs to be acquired (special tooling, machinery, computers, and vehicles) projections.


IMPORTANT
The Manufacturing Segment

1. Provide the advantages of your location (zoning, tax laws, wage rates).
2. List the production needs in terms of facilities (plant, storage, office space) and equipment (machinery, furnishings, supplies).
3. Describe the access to transportation (For shipping and receiving).
4. Explain proximity to your suppliers.
5. Mention the availability of labor in your location.
6. Provide estimates of manufacturing costs-be careful; too many entrepreneurs underestimate their costs.

CHECK LIST
Manufacturing Segment

1. Where will the business be located?
2. What factors have influence the choice of location?
3. Have you described the needs for production facilities and equipment ?
4. Who will be your suppliers ?
5. What type of transportation is available ?
6. What is the supply of available labour ?

V. MANAGEMENT SEGMENT
For most investors the experience and quality of the management team is the most important aspect they evaluate when investing in a company. Investors must feel confident that the management team knows its market and product, and has the ability to implement the plan. In essence, your plan must communicate management's capabilities in obtaining the objectives outlined in the plan. If this area is weak, your chances for obtaining financing are bleak.
If your team is lacking in a critical area, identify how you plan on compensating for the void. Whether it is additional training required or additional management staff needed, show that you know the problem exists, and provide your options for solutions.
When preparing this section of the business plan, you should address the following five areas:
1. Personal history of the principals:

• Business background of the principals
• Past experience — tracking successes, responsibilities and capabilities
• Educational background (formal and informal)
• Personal data: age, current address, interests, education, special abilities, reasons for entering into a business
• Personal financial statement with supporting documentation

2. Work experience:

• Direct operational and managerial experience in this type of business
• Indirect managerial experiences

3. Duties and responsibilities:

• Who will do what and why
• Organizational chart with chain of command and listing of duties
• Who is responsible for the final decisions and the ultimate responsibility

4. Salaries and benefits:

• A simple statement of what management will be paid by position
• Listing of bonuses in realistic terms
• Benefits (medical, life insurance, disability, etc.)

5. Resources available to your business:

• Insurance broker(s)
• Lawyer
• Accountant
• Consulting group(s)
• Small Business Association
• Local business information centers
• Chambers of Commerce
• Local colleges and universities
• Federal, state, and local agencies
• Board of Directors
• World Wide Web (various search engines)
• Banker

Personnel
The success of a business can often be measured by its employees. Seventy percent of consumers will go elsewhere if they don't receive prompt and courteous service. You must consider the following questions in completing this section of the business plan:

1. What are your current personnel needs (full or part-time)? How many employees do you envision in the near future and in the next three to five years?
2. What skills must your employees have? What will their job descriptions be?
3. Are the people you need readily available and how will you attract them?
4. Will you be paying salaries or hourly wages?
5. Will there be benefits? If so, what will they be and at what cost?
6. Will you pay overtime?

This segment identifies the key personnel, their positions and responsibilities, and the career experiences that qualify them for those particular roles. Complete resumes should be provided for each member of the management team' Also, this section is where the entrepreneur's role in the venture should be clearly outlined. Finally, any advisers, consultants or members of the board should be identified and discussed.


IMPORTANT
Management Segment

1. Provide resumes of all key people in the management of the venture.
2. Carefully describe the legal structure of the venture (sole proprietorship, partnership, or corporation). Cover the added assistance (if any) of advisers, consultants, and directors.
3. Provide information on how everyone is to be compensated (how much, also).

CHECK LIST
Management Segment

1. Who will manage the business?
2. What qualifications do you have?
3. How many employees will you need? What will they do ?
4. What are your plans for employee salaries, wages, benefits?
5. What consultants or specialists will you need? Why will you need them ?
6. What legal form of ownership will you choose? Why?
7. What licenses and permits will you need?

VI. CRITICAL-RISKS SEGMENT
In this segment potential risks such as the following should be identified: effect of unfavourable trends in the industry, design or manufacturing costs that have gone over estimates, difficulties of long lead times encountered when purchasing parts or materials, and unplanned-for new competition.
In addition to these risks, it is also wise to cover the what-ifs. For example, what if the competition cuts prices, the industry slumps, the market projections are wrong, the sales projections are not achieved, the patents do not come through, or the management team breaks up?

IMPORTANT
The Critical-Risks Segment
Discuss potential risks before investors point them out. Some examples follow:

1. Price cutting by competitors
2. Potentially unfavourable industry-wide trends
3. Design or manufacturing costs in excess of estimates
4. Sales projections not achieved
5. Product development schedule not met
6. Difficulties or long lead times encountered in the procurement of parts or raw materials
7. Larger-than-expected innovation and development costs to stay competitive
8. Name alternative courses of action.

CHECK LIST
Critical Risks Segment

1. What potential problem you have identified ?
2. How many obstacles do you foresee?
3. Have you calculated the risk?
4. What alternative courses of action are there?

VII. FINANCIAL SEGMENT
At the heart of any business operation is the accounting system. It is important to have a certified public accountant establish your accounting system before you start your business. At times there is a tendency to do this yourself. Remember that an incredible number of businesses fail due to managerial inefficiencies. Consult with trained professionals to help you in the area of accounting and legal matters. If your business can't afford an accountant to establish your books, then you are undercapitalized. You need to secure additional resources before starting.
One of the first steps to having a profitable business is to establish a bookkeeping system which provides you with data in the following four areas:

1. Balance Sheet — indicates what the cash position of the business is and what the owner's equity is at a given point (the balance sheet will show assets, liabilities and retained earnings).
2. Break-Even Analysis — is based on the income statement and cash flow. All businesses should perform this analysis without exceptions. A break-even analysis shows the volume of revenue from sales that are needed to balance the fixed and variable expenses.
3. Income Statement — also called the profit and loss statement, it is used to indicate how well the company is managing its cash and liquidity by subtracting disbursements from receipts.
4. Cash Flow — this projects all cash receipts and disbursements. Cash flow is critical to the survival of any business.

If the goal of your business plan is to obtain financing, you will be required to generate financial forecasts. The forecasts demonstrate the need for funds and the future value of equity investment or debt repayments. This exercise is critical in obtaining capital for your business. To obtain capital from lending institutions you must demonstrate the need for the funding and your ability to repay the loan. The forecast that you generate should cover a three to five-years.


IMPORTANT
Financial Segment

1. Provide statements.
2. Describe the needed sources for your Funds and the uses you intend for the money. Provide a budget.
3. Create stages of financing for the purpose of allowing evaluation by investors at various points

CHECK LIST
Financial Segment

1. What is your total estimated business income for the first year? Monthly income for the first year? Quarterly income for the second and the third year?
2. What will it cost you to open the business?
3. What will be your monthly cash flow during the first year?
4. What will be your personal monthly financial needs?
5. What sales volume will you need in order to make a profit during the first three years?
6. What will be the break even point?
7. What will be your projected assets, liabilities, and net worth on the day before you expect to open?
8. What will be your total financial needs?
9. What will be your potential funding sources?
10. How will you use the money from lenders or investors?
11. How will the loan be secured?

VIII. MILESTONE SCHEDULE SEGMENT
Milestone schedule segment provides investors with a time table for the various activities to be accomplished. It is important to demonstrate that realistic time frames have been planned and that the interrelationship of events within these time boundaries is understood. Milestone scheduling is a step-by-step approach to illustrating accomplishments in a piece-meal fashion.
These milestones can be established according to any appropriate time frame, such is quarterly, monthly, or weekly. It is important, however, to coordinate the time frame not only with such early activities as product design and development, sales projections. Establishing the management team, production and operations scheduling, and market planning, but with other activities as well:

1. Incorporation of the venture
2. Completion of design and development
3. Completion of prototypes
4. Hiring of sales representatives
5. Product display at trade, shows
6. Signing up distributors and dealers
7. Ordering, production quantities of materials
8. Receipt of first orders
9. First sales and first deliveries (dates of maximum interest because they relate directly to the venture's credibility and need for capital)
10. Payment of first accounts receivable (cash in)

These items are examples of the types of activities that should be included in the milestone schedule segment. The more detailed the schedule, the better the chance the entrepreneur can persuade potential investors he or she has thought things out and is therefore a good risk.

IMPORTANT
Milestone Schedule Segment

1. Provide a timetable or chart to demonstrate when each phase of the venture is to be completed.
2. This shows the relationship of events and provides a deadline for accomplishment.

CHECK LIST
Milestone Schedule Segment

1. What timing have you projected for this project?
2. How have you set your objectives?
3. Have you set deadlines for each stage of your venture?
4. Does the relationship exist among events in this venture?

IX. APPENDIX AND/OR BIBLIOGRAPHY SEGMENT
The final segment is not mandatory, but it allows for additional documentation that is not appropriate in the main parts of the plan. Diagrams, blueprints, financial data, vitae of management team members, and any bibliographical information that supports the other segments of the plan are all examples of material that can be included. It is up to the entrepreneur to decide which, if any, items to put into this segment. However, the material should be limited to relevant and supporting information.

CHECK LIST
Appendix Segment

1. Have you included any documents, drawings, agreements, or other materials needed to support the plan?
2. Do you have any name of references, advisers, or technical sources you should include?

Based on many resources in internet


Joko Win
Malang, Oktober 2007