How do I write a business plan?

1. Introduction

In starting a business, the first step would be to write a business plan. This plan will offer your potential investors or lenders a look at what they will be putting their money toward. A plan also sets the course for the firm, and can be conveyed to future employees, as well as gauge the success of the company.

2. Description of the Business

This part should include such details as: a detailed description of the business, what type of ownership you have over the business (proprietorship, partnership, corporation), business type (merchandising, manufacturing, service), what your business offers, why your firm will be profitable, what days/hours your business will operate, goals of the company, etc.

Before moving on, make sure you answer the following questions:

-  What type of ownership will you have of the business? It is best to learn the pros and cons of each type of ownership (how much liability, responsibility you have).

- What operating hours will be most beneficial for your company? Find out the hours of other stores in the area (when they are open determines when people frequent the area, so having similar opening and closing times will fit into the area’s culture). However, if competitors are close by, you may want to look for a lack of hours (if they’re open from 10 am – 5 pm, you may want to open earlier and close later to capture some of the market that they aren’t. On the other hand, if your competitors are open 24 hours, you may have to do the same in order to compete.

3. Detail the Product and/or Service 

This section should describe the product/service offered, how this product/service will benefit the consumer, if this product/service is in demand (how the company will profit), and how what your company offers is different than other current competitors offerings. Goods and services are a general way of describing whatever companies offer their clients. Goods are tangible items – meaning you can hold them or touch them, while services are intangible – meaning you can’t physically hold them. In other words, goods are items you walk out with and services are procedures that are done to/for you. Examples of goods include groceries, clothes, cars and boats. Examples of services include car washing, shoe shining, valet and dry-cleaning.

Before moving on, make sure you answer the following questions:

- How is your product/service different from every other product? Knowing how your product/service is different will enable you to provide customers with a reason to visit you for their needs. If your firm doesn’t offer something different, chances are customers won’t see a need to visit your establishment and you won’t achieve predicted sales.

-Does your product/service have a market? You need to know if your product is needed because if there is not enough demand, the company you developed will not survive. You can research demand by analyzing the use of your product or service within driving distance of your establishment, as well as the demographic of the local residents (would these people use this product/service?). Projections of use are also handy, if analysts foresee use increasing, this could mean the market is opening up and there is room for more suppliers, such as your company. However, the validity of these projections must be verified.

4. Physical Location

“Location, location, location.” You’ve heard it time and again, folks, it’s the place that makes a place. This section of the plan will detail the physical needs of the firm (parking lots, storage area, frontage, etc.), ease of access, public transportation, as well as how all of these features appeal to or attract consumers.

Before moving on, make sure you answer the following questions:

-Will you lease or buy the property? This decision relies mainly on the nature of your finances, what you can afford, and the length of your stay. Buying is a huge investment and even if your firm goes under, you will need to get it off of your hands. It is usually better to lease a property for ease of entry and exit into the market.

-Have you walked the property (not just seen an aerial view or done a drive-by)? Before leasing/buying a property, you must visit it, walk the lot, and plan the layout of parking, access ways and shrubbery. These are all very important; customers aren’t going to frequent a place where they have to go through a lot of trouble just to park. Another facet is the road passing by the establishment: Is it two-laned? Operations located on two-laned streets may experience more visibility, more traffic passing by, which leads to a better chance someone will turn in. Is there a median? This could restrict some people from coming in since they would have to pass the establishment and then make a U-turn to enter the premises.

-Will your customers be arriving in their own transportation? How close is the nearest bus stop? Close enough to walk? You don’t want people to have to walk a long way to get to your location, but you also don’t want a bus stop blocking the entrance (where motorists could come in) every day.

-How is the signage? Will a passing car be able to see your building and know what your company offers? Are you allowed to place a sign in front of your building or must you advertise only on the building itself? Is there a billboard on your property and if so, can you collect rent on it?

-What are the requirements on land reserves (any part of the property you are required to keep natural, i.e. undeveloped)? This mandatory greenery could cut down on the size of the property, could detract customers, or could even block signage. Also, if you don’t know the requirements, etc., you might overhaul the area, trying to use all of the land on your lot.     

5. Writing a Marketing Plan

A marketing plan is important to all businesses because it provides a structure and justification for what the firm offers its potential customers.

There are many steps to a marketing plan:

Step 1: Analysis of promotional program/situation

A.     Target market analysis

This will require determining the target market for your product/service. After you have determined the ideal consumers, you must gain as much information about them as possible. This can be done through reliable demographic reporting Web sites, agencies, or databases.  Many times, this information can be found for free, but other times, you may have to pay for the data, especially the more specific types (e.g. How many 18-year-olds in Winter Park, Florida use cell phones?). Target market analysis will include: statistics about the target market such as age, race, sex, income, family status, education, literacy, behavior, culture, lifestyle, values, likes/dislikes, etc.

Finding Marketing Data on the Web

You Are Where You Live
An abbreviated free version of the PRIZM lifestyle segmentation system, the demographic information in this database is based on US Census data.  To use the search engine, select a system from the drop down box.  Then enter the zip code you want to search. 

CensusScope: Census Data, Charts, Maps and Ratings
This site provides US Census data that can help find your target market or determine target area for your marketing plan.

B. Marketing Objective for the Product or Service

This is basically what the marketing plan sets out to do. An example of a marketing objective for a doctor’s office looking to increase business may be: “To create 40% awareness of Dr. X’s general practice among Orlando residents ages 0-90 by next year. To motivate 10% of the above target market to make an appointment when they are sick via a direct mail campaign in the next 3 months.” A poor example of a marketing objective would be “To increase customer visits to Dr. X.” This is because marketing objectives need several attributes, which can be broken down into the acronym SMART:          

• S – Specific: make sure you clarify things so they are clear to everyone in the firm
• M – Measurable make sure you can look back and make sure you reached your objective
• A – Actionable: Know your plan of action for this objective
• R – Realistic: don’t stretch your resources so far that you can’t achieve the goals you set out to do – keep things in perspective!
• T – Timely: Make sure you have a deadline to get this done

Step 2: Analysis of communication process

State the communication goals and objectives.

Identify what type of buying involvement the target market will use for this purchase decision.

Analyze source, message and channels to deliver message; remember: no one wants to buy something they don’t know is being sold. How you convey your ads/network/promote the product/service is a crucial link in the firm’s success.

Step 3: Budget and schedule determination

You must deem how many times the consumer will see your advertisement: establish time frames for delivery of message (how frequent, time of day, season, etc.) A budget is useful to keep spending and costs in check. Many times, the cost of a project is the sole reason a company may reject it so it’s very important to set a reasonable budget and stick to it.

Step 4: Promotion description and creativity

Describe or summarize the promotion. Below are different ways to promote a product/service, and the upsides and downsides of each one.

A. Direct Marketing

The purpose of Direct Marketing is to generate a response (call the company, hit the Website, send in the postcard); examples: consumer must have to generate a response. There are pros and cons to this method of marketing:

Pros of Direct Marketing

§         Efficient - This depends on how many viewers you will have – the more people who know about you, the more people will respond to your marketing.

§         Little wasted coverage – Meaning you have intensive coverage over the mass market; not everyone passes your billboard on the highway, but everyone receives mail.

§         Targeted medium – With direct marketing, you can pinpoint your target market right down to their zip code (Ah! here’s where that market analysis you did earlier comes in!). You can find out previous purchases and target these select consumers.

§         Direct marketing can work well, assuming you have a good list. In other words, your direct marketing is only as good as your mailing list – because if you aren’t hitting the right market, then you wont get the response you expected.

Cons of Direct Marketing

§         Low response rate – The responsibility to respond is left with the customer; most may not take the time or energy to do so.

§         Poor image – Direct marketing can come off as an invasion of privacy to some people, possibly giving the company using this form of marketing a negative image. For example, the mail that is sent to people is usually called “junk mail”.

§         Can be expensive – This form of marketing can be likened to throwing spaghetti up against a wall – some of it will stick and some of it won’t, but you end up wasting a whole bowl of spaghetti for just a few noodles to stick to the wall.

B. Sales Promotion

The purpose of sales promotion is to generate immediate short-term sales. There are two types of sales promotion strategies:

§         A pull strategy is when a company spends money on advertising and consumer promotion to increase demand for a product. This means that consumers see an ad, want the product, and go to stores to see if they have it. If they don’t, the consumer asks for it, and in essence, pulls the item through the supply chain. The store then requests the item from the manufacturer. Examples of pull promotional strategies include: buy one get one free offers, bundling (something free for consumers when they purchase an item), coupons, rebates, sampling, premiums, contests, bonus packs, price-off deals, event sponsorship.

§         A push strategy is more trade-oriented and happens when a company’s sales force creates consumer demand. This is set into motion when the sales force pushes the product to wholesalers, who in turn, promote it to retailers, who finally promote it to the consumer.   Examples of a push strategy include: contests and incentives, coop ad, trades shows, sales training programs, trade allowances, displays and point-of-purchase materials.

Pros of Push and Pull Strategies

§         Consumers are receptive which in turn:

§         Stimulates demand – making’ money, can’t complain

Cons of Push and Pull Strategies

§         Sunk cost – These promotions cost money upfront which, if the promotion doesn’t stimulate as much demand as expected, may not be made up for in profits

§         Expensive  - Advertising can be expensive

§         Erodes brand equity – Which is big words for making your product look cheaper than it is; trying to get people to buy a product for less than its normal price runs the risk of making the product

More information and examples on push and pull strategies can be found at Tutor2u Digital Learning Resources:  Promotion – Push and Pull Strategies. 

C. Public Relations/Publicity

Many people use the terms public relations (PR) and publicity interchangeably, however there is a significant difference between the two words. PR is controlled, planned and funded by the company while publicity is not. While positive publicity is like having free advertising, publicity may also backfire when it reflects badly on the company. At this point, the PR department has to be proactive. The purpose of PR is to be proactive; have a plan for a tragedy, etc. before it happens. A good example of this is a boycott – when people stop buying some product because they heard that the firm has sweatshops or tests products on animals. This bad publicity leads to PR stepping in and defending the company. The PR department could have prevented this by alerting the firm of the public’s stance on sweatshops or animal testing. The pros and cons of PR/Publicity are as follows:

Pros of PR/Publicity

• Very well received by people. What can you say? People love to see companies doing good deeds and helping others.

   Cons of PR/Publicity

§     Negative publicity can ruin a company

D. Personal Selling

The purpose of personal selling is selling within a personal two-way form of communication. An example of this marketing method would be a car salesman or a realtor. When you go up to him, he has no idea what you want, but as you tell him features and qualities about the car/house that you like/dislike, he narrows it down in his head and leads you to the car/home that you would find most satisfactory.

Pros of Personal Selling

You can tailor the message; you can respond to the needs of the customers. If you get a customer coming in for a Yellow Jeep, you will take her straight to the Yellow Jeeps on your lots. You both don’t have to waste a lot of time and she gets what she needs.

Instant feedback. If she didn’t like the Jeep’s tires and for that reason left the car lot, you may think not to point them out to the next customer, thinking that that may deter them from purchasing as it did with your Jeep customer.

Cons of Personal Selling

You can tailor the message. This is also a con because with salespeople (independent thinkers) there is a lack of control over the message, which means each customer coming through the door may get an inconsistent message.

One of the most expensive per contact. You have to pay someone to work with each and every customer, which is time and money invested that may not be worth it if the customer goes elsewhere and buys from someone else.

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Step 5: Evaluation and Control of Promotion

Describe if and how you plan to evaluate the communication of the message; explain how this way is appropriate

Justify the expense/benefit of this type of evaluation

Marketing Resources on the Web

The following Web resources will help you to find articles on marketing topics, marketing and promotion information, and further information on writing marketing plans.  An online marketing dictionary is also provided.

Marketing Articles from MarketingProfs.com
This is a collection of articles on marketing which focus on specific topics, such as branding and research methods. This may be useful once you are making important decisions about marketing your firm.

Marketing Your Business for Success – Outline for a Marketing Plan
This site provides an expanded version of a marketing plan. This can be used once a business has been operating for some time. This tutorial provides a preliminary marketing plan for the beginning of a firm’s existence.

OneStop Marketing Resources for Small Businesses
This site provides marketing and promotion tips and resources to small business owners. While the site is based out of Canada, it is applicable to US businesses.

Internet Marketing Dictionary
Since technology is such a large part of business today, here is a link for the marketing lingo specific to the Internet. This may be helpful when producing or evaluating a Web site for your firm.

6. Competition

 In order to keep up with your competitors, you must analyze them. As part of your business plan, you need to take into account the threats that competitors have over your profits. You should recognize the top direct competitors for your product, as well as the indirect competitors (those offering like or substitute products). This should be an in-depth analysis into their successes and failures, what they’ve been doing as far as operations, marketing, financing, etc. Also, you should create SWOT matrixes from this information for each competitor in order to recognize their strengths and weaknesses so that you can better compete against them. A SWOT matrix is used when analyzing a company. It is divided into four sections: Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses can be found within the company (internally) while opportunities and threats can be found in the external environment of the company. For example: Strength: Coca-Cola has great brand loyalty. Weakness: Coca-Cola has suffered human resource trouble in the past. Opportunity: Coca-Cola might merge with 7-Up. Threat: Pepsi could form conglomerate with Nabisco. For more information on SWOT analysis, please check out the article called “SWOT:  Understanding and Using SWOT Analysis”.

While you may think that most of this information may be readily available at the company’s Website or in its annual report, the majority of it may be found in the media. Companies usually don’t want to publicize their downfalls, so they may play down something that might have happened – such as a product failure, failed market entry, etc. The best place to research these types of subjects is in newspapers, Internet databases, trade publications, magazines, etc.

After recognizing strengths, weaknesses, opportunities and threats of your competitors, you should devise strategies to take advantage of competitors weaknesses and threats (perhaps by offering different products), as well as try to accumulate some of their strengths and opportunities for your own company (for example, by mimicking the actions of a certain firm). 

Please refer to the Company information tutorial for more information on how to retrieve specific data for each of your firm’s competitors.

7.  Pricing and Sales

This section of the business plan should outline what type of pricing strategy your company will take. Whether you will price above or below your competitors, how much your cost is and how much of a mark-up your prices will represent, etc. This is very important for the financial wherewithal of the firm.

It is extremely important for a firm to be profitable, and these pricing/sales estimates will show investors/stock holders that your company plans on making money to support itself and reward investors.

Pricing strategy is also important in the consumer’s view of the brand/products. If a product is not priced high enough to begin with, consumers may believe it is a value-type item. At the same time, if a product is priced too high to begin with, consumers may not buy it, therefore hurting the finances of the company. Many times, when the latter occurs, the firm is trying to portray a very exclusive feel to the product/service, which may be helpful if the company is well-known and has a high reputation, but this same pricing strategy could end up hurting a smaller company before it has a chance to gain market share.

8. Management Plan

Human resources are practically the most important aspect of a company. If you don’t have the right people with the right skills working at the right time, results could be less than perfect. In order to set up your firm correctly from the beginning, it is imperative that you lay down standards for those fulfilling management positions. Make sure you have thought about these topics before moving on:

Does your experience help you in this firm? When choosing other employees, you should look for skills and attributes that you lack, in order to compensate and balance the management facet. You should set up positions and assign duties to each role. Also, any benefits that you will offer employees should be designated.

What are the demographics like for the surrounding areas? Are there enough unemployed people to work for you with the right qualifications for the job positions?

How will you attract people to work for your company? There are a wide array of options including job fairs, headhunters, Internet ads and newspaper ads. These are all significant resources, but how does the type of personnel you need respond to these different mediums? For example, a janitor is not likely to have a resume and would therefore not be as apt to post it on an Internet site searching for a job. Perhaps this type of employee would best be found through newspaper ads.

9. Financial Plan

Even though starting a business can be exciting, sometimes the numbers take a while to turn positive. With the likes of Tyco, Enron and WorldCom out there, one cannot take enough caution with financial planning for his/her firm. There are two types of costs: start-up costs and operating costs. A start-up budget usually includes one-time expenses such as licenses, permits, supplies, insurance, utilities, payroll expenses, etc. When you actually get prepared to open for business, you will have an operating budget, detailing the costs of everyday expenses, such as personnel, rent, depreciation, advertising/promotion, salaries/wages, etc.

The following items should be included in this section, as well:

a) any loan applications you’ve filed

b) capital equipment and supply list

c)  balance sheet

d)  breakeven analysis (how far into the future until you start making money)

e) pro-forma income projections (Profit and loss)

f)  pro-forma cash flow

There are companies that you can outsource to perform your accounting needs, if you have the money. If this isn’t an option for your business, it is best to have someone else (such as an accountant) look over your finances, so as to make sure that everything is in order.

Financial Accounting Calculators on the Web

There are also Internet sites that can help you do your own accounting.

Accounting Over Easy
This Website will help you formulate your firm’s financial statements. While it provides you the basic layout for free, purchasing the actual calculator costs a fee. Though because the site provides you directions on how to get to the bottom line, there is no need to purchase the calculator.

FinanCenter – Small Business
This site provides small business calculators addressing the topics of start-up funding for businesses, buy/lease equipment, repaying loans, assessing business worth, etc. It is important for a small business owner to take these decisions into account and evaluating each one.

Also popular now are the accounting packages (e.g. Quicken), which can help immensely with your firm’s finances. Keep in mind, however, that these programs only assist you in the accounting process, and require training as well as purchase of the product. It might be easier to hire someone who knows the software to come into your firm and perform the financials for you.

While starting your own business, it may be helpful to acquire an existing firm. Or perhaps in starting your own company, you would like to compare your financial figures to competitors. Both of these actions would require an analysis of the firm’s financials. In order to help you evaluate other firm’s financials, please refer to the How do I evaluate a company’s financial performance? tutorial. 

More Resources for Writing Business Plans

Web Sites

U.S. Small Business Administration
This website has many resources for operating a business. It has everything from starting, financing and managing your business. The US SBA is designed to assist small businesses succeeding.

Writing the Plan: U.S. Small business Administration
This Website outlines a business plan for you. This tutorial is based off of this outline, but also offers more Internet links in order to streamline the process of writing a business plan.

How to write a business plan
This site provides another similar outline for a business plan. This plan is more concise and brief, but still informative.

About Entrepreneurs & Entrepreneurship
This Website is a resource for current information on running your own business. Provides information on such topics as: business ideas, business structure and plans, marketing, financing, and beyond startup.

Books 

The books listed here are held in the Reference collection in the Olin Library, Rollins College.  If you are not a Rollins College student, faculty or staff member, please refer to your local public or academic libraries for these books.

Anatomy of a Business Plan
REF HD30.28.P5 1996

Provides a lengthy description of the parts of the business plan and includes sample financial statements.  Appendixes include two sample business plans, blank forms and worksheets, and a glossary.

Business Plans Handbook
REF HD62.7.B865 1995

A compilation of sample business plans from small businesses in North America.

Works Cited

Appraisal Institute. The Appraisal of Real Estate.12^th ed. Chicago, IL:  Appraisal Institute, 2001. 

Belch, George E. and Michael A. Advertising and Promotion: An Integrated Marketing Communications Perspective. 5^th ed. New York:  McGraw-Hill/Irwin, 2001.

U.S. Small Business Administration. Business Plan Basics– 13 June 2003.  http://www.sba.gov/starting_business/planning/basic.html

Collison, Harry. FIN 608 – Real Estate Analysis. Class Notes. Crummer Graduate School of Business, Rollins College, Winter Park, Florida, Fall 2002. 

Marketing-Promotion-Push and Pull Strategy. 14 May 2003. http://www.tutor2u.net/business/marketing/promotion_pushpull.asp

Rodriguez, Michelle. MKT 604 – Advertising and Sales Promotion. Syllabus and Class Notes. Crummer Graduate School of Business, Rollins College, Winter Park, Florida, Fall 2002.