INTRODUCTION

One of the first tasks one must do prior to opening a business is also the most difficult; that is to write your business plan. It is a known fact that 50% of all small businesses fail within the first two years, one of the reasons is under capitalization, the second is a lack of understanding of the market. By preparing a business plan you will gain a thorough understanding of the market, your competitors, and whether or not your idea for a business is financially feasible.

THE ROLE AND IMPORTANCE OF A
BUSINESS PLAN

According to Linda Elkins, author of Let's Write A Business Plan Together, "A business plan is a formal presentation of the resources, goals, plans and future outlook of a business." A well-written, comprehensive business plan forms the basis for the success of any business venture. It should clearly define the goals of a business and outline the methods for achieving them. The business plan is not intended as an exercise in idealistic projections. It should be a useful document that guides you in decision-making. Perhaps the most important role of the business plan is to clarify the venture for the entrepreneur.

Potential investors and loan officers want and need to see how you plan to generate the income/sales needed for daily operations, for paying debts and for making a profit. The business plan is the most effective way of presenting this information. Even if you are not seeking financing or outside investments, a business plan serves as a road map. It helps you understand where you are and how to get where you want to be.

By writing a business plan, you will gain tremendous competitive advantages in at least three areas:

Marketing - The research you do for your plan puts you in touch with the customer. It helps you identify your customers, their needs and expectations. The marketing plan should identify your target market, explain the methodologies you will use to attract and keep customers, outline your pricing strategy, and contain sample advertising and promotional material that you will use.

Personnel - the business plan is an excellent communications tool. Employees are the most valuable asset a business has. If your employees know and understand the goals of your business and their role in relation to these goals, your profits probably will increase. The management plan will outline your daily operating procedures. It will identify your management staff and describe their duties and responsibilities, as well as the duties and responsibilities of employees, explain your hiring and firing policies, list your operating hours and outline what, if any, benefits you can afford, in addition to holidays and vacation time.

Financing - Your financial strategy is the heart of your business plan. It explains how you will satisfy your customers while turning a profit, and is expressed in financial terms in your cash flow projection. Your cash flow works as a cash budget, helps you calculate the amount of investment needed to get your business off the ground, and shows you when and how much money you'll need to borrow. Acquiring a thorough understanding of these financial-management concepts and techniques will increase your chances of operating a successful business.

Other advantages of writing a business plan include

• Determining the viability of the venture in a designated market

• Assisting you in organizing your planning activities

• Determining if your business will be profitable, and the growth opportunities available

• Defining your target market

• Identifying competitors, their strengths and weaknesses

• Developing an effective pricing strategy

• Identifying your skills, strengths and weaknesses

• Determining capital and working-capital needs

• Learning to prepare and use cash flow projections, balance sheets, break-even analysis

By understanding these and other operation-related matters, you should gain a competitive edge that will improve your chances of operating a successful business. In addition, a written business plan is an excellent way to establish credibility and show that being successful is important to you.

ELEMENTS OF A BUSINESS PLAN

The body of the business plan can be divided into four distinct sections:

• the Description of the Business

• the Marketing Plan

• the Management Plan

• the Financial Management Plan.

Addenda to the business plan should include the executive summary, supporting documents and financial projections.

Description of the Business

In this section provide a detailed description of your business. An excellent question to ask yourself is "What business am I in?" In answering this question, include your products, market and services as well as a thorough description of what makes your business unique. Remember, however, that as you develop your business plan, you may have to modify or revise your initial questions and the description of your business.

The business description section is divided into three primary sections. Section 1 actually describes your business; Section 2 describes the product or service, and Section 3 describes the location and why this location is desirable.

Business Description

The following items should be covered in this section:

• Current status

• Legal structure
  (proprietorship, partnership, corporation, etc.)

• Board members/advisors

• Ownership

• Capitalization

• Organization Chart

• Description of key personnel

• Description of product or service

• When your business will be open (days, hours)

• Why your business will be profitable. What its growth opportunities are. What market trends may have an impact on growth. What impact these trends will have on your business.

• What you have learned about your type of business from outside sources.

The description of your business should clearly identify goals and objectives, and it should clarify why you are in business, or why you want to be in business.

Product/Service

Try to describe the benefits of your goods and services from your customers' perspective. Successful business owners know or at least have an idea of what their customers want or expect from them. This type of anticipation can be helpful in building customer satisfaction and loyalty. And it certainly is a good strategy for beating the competition or retaining your competitiveness.

The following items should be covered in this section:

• What you are selling

• How your product or service will benefit the customer

• Which products/services are in demand; whether they will bring a steady flow of cash

• What is different about the product or service you are offering

• Why this product/service is a better solution

• Service-use scenarios

• How the customer will think about your product, and how this compares to what the product will do (The description of your product may be ordinary, but if it offers a unique solution for your customers, the customer will not think of it as ordinary.)

• Why you made your product the way you did How the product is used and what it replaces

Any patents you have or are applying for and their importance

How the product was developed and what further developments are needed before marketing

Location

The location of your business can play a decisive role in its success or failure. Your location should be built around your customers; it should be accessible and it should provide a sense of security. Consider these questions when addressing this section of your business plan:

• What are your location needs?

• What kind of space will you need?

• Why is the building and/or area you have in mind desirable?

• Is it easily accessible? Is public transportation available?

• Are market shifts or demographic shifts occurring?

Marketing Plan

Marketing plays a vital role in successful business ventures. How well you market your business, along with a few other considerations, will ultimately determine your degree of success or failure. The key element of a successful marketing plan is knowledge of your customers ­ their likes, dislikes, expectations. By identifying these factors, you can develop a marketing strategy that will allow you to arouse and fulfill their needs.

Identify your customers by their age, sex, income/educational levels, and residence. At first, target only those customers who are most likely to purchase your product or service. As your customer base expands, you may need to modify the marketing plan to include other customers.

Developing a Marketing Plan

When developing a marketing plan for your business, answering these questions may be helpful:

• Who are your customers? Define your target market(s).

• Are your markets growing? Steady? Declining?

• Is your market share growing? Steady? Declining?

• Have your markets been segmented?

• Are your markets large enough to expand?

• How will you attract, hold, increase your market share?

• What pricing strategy, if any, have you devised?

• What image do you wish to project?

In writing the marketing plan section for your business plan, include these items as well:

Description of the overall industry

Trends in the marketplace

Specific example of success

Reaction to your firm and any of its products or services seen or tested by your customers

Description of firm's marketing activities, overall marketing strategy, pricing policy, method of selling, distributing and servicing the product, geographic penetration, field product support, advertising, public relations and promotions, and priorities among these activities

Description of selling activities, including the method for identifying prospective customers and how and in what order you will contact the relevant decision-makers Also, describe your sales effort, sales chan- nels and terms, number of salespersons, number of sales contacts, anticipated time, initial order-size and estimated sales and market share.

Finding out about Markets

Market-information analysis includes all activities involved in gathering and understanding information about a company's target markets. It includes getting information about the markets' buying habits, the competition, distribution patterns and sales practices. It includes developing a plan for getting and using all the information needed.

Some definitions that may be helpful are:

Total Market = The number of possible users within a specific industry

Target Market = The number of possible users within a specific market defined by user segmentation

Market Share = the number of users a company can reasonably hope to capture given its market strategies

Some sources for gathering market data are

• Industry associations

• Competitors

• Suppliers, sales representatives, editors of trade journals

• Independent market research companies

• Surveys and market analyses from trade journals

• Government publications

• Research libraries

Competition

Competition is a way of life. We compete for jobs, promotions, scholarships, in sports ­ in almost every aspect of our lives. Nations compete for consumers in the global marketplace as do individual business owners. Advances in technology can send the profit margins of a successful business into a tailspin causing them to plummet overnight or within a few hours. When considering these and other factors, we can conclude that business is a highly competitive, volatile arena. Because of this volatility and competitiveness, it is important to know your competitors.

Who are your five nearest direct competitors?

Who are your indirect competitors?

How are their businesses? Steady? Increasing? Decreasing?

What have you learned from their operations? From their advertising?

What are their strengths and weaknesses?

How does their product or service differ from yours?

Who makes products that do the same thing?

Who makes products that can be substituted?

How are these competing companies faring?

What is volume of sales of these competitors?

Are there other companies trying to enter the same marketplace right now? How do you compare with these other new entries?

What other products do these companies make?

Are they on their own, or are they owned by corporate giants, which will make them much harder to compete with?

What is the competitive profile of the industry? Is the industry dominated by a few giant corporations, or is there no clear leader but instead a mass of small competitors? Are the competitors all national or are most regional?

Start a file on each of your competitors. Keep manila envelopes of their advertising and promotional materials and their pricing strategy techniques. Review these files periodically, determining when and how often they advertise, sponsor promotions and offer sales. Study the copy used in the advertising and promotional materials and their sales strategy. For example, is their copy short, descriptive, catchy? By how much do they reduce prices for sales? Using this technique can help you understand your competitors, and how they operate their businesses.

Pricing and Sales

Your pricing strategy is another marketing technique for improving your overall competitiveness. It may be a good idea to get a feel for the pricing strategy your competitors are using as well as pricing strategies within the industry. That way you can determine if your prices are in line with competitors in your market area, and if they are in line with industry averages. Some things to consider are

Retail cost and pricing

Competitive position

Pricing below competition

Pricing above competition

Multiple pricing

Service costs and pricing (for service businesses only)

Labor costs

Overhead costs

The key to success is to have a well-planned strategy, establish your policies, and constantly monitor prices and operating costs to insure profits. It is a good policy to keep abreast of the changes in the marketplace because these changes can affect your competitiveness and profit margins.

The pricing of goods and services in all types of business is similar in several basic ways. Most businesses arrive at pricing decisions based on cost-plus, that is, totaling the costs of providing the product or service and adding a sum for profit. Cost-plus pricing techniques do not take customer demand into account, so the price may not be what customers are willing to pay.

Pricing is perhaps the most complex marketing decision. There is no one best formula to use to establish prices. A price strategy is only effective if the customer is willing to pay the price and a profit is received. Some computer and technology advancements have simplified pricing decisions. To be successful, a marketing strategy must set prices that are both satisfying to customers and profitable to the business.

Advertising and Public Relations

How you advertise and promote your business may make or break it. Having a good product or service and not advertising and promoting it is like not having a business at all. Many business owners operate under the mistaken conception that the business will promote itself, and channel money that should be used for advertising and promotion to other areas of the business. Advertising and promotions however, are the lifeline of a business and should be treated as such.

Devise a plan that uses advertising and networking as a means to promote your business. Develop short, descriptive copy that clearly identifies your goods or services, the price and the location of your business. Use catchy phrases to arouse the interest of your readers, listeners or viewers. Make sure, however, the advertisements you create are consistent with the image that you are trying to project and that they don't promise more than you are prepared to deliver. Remember that the more care and attention you devote to your marketing program, the more successful your business will be.

The Management Plan

Managing a business requires more than just the desire to be your own boss. It demands dedication, persistence, the ability to make decisions and the ability to manage both employees and finances. Your management plan, along with your marketing and financial plans, sets the foundation for and facilitates the success of your business. They are the most important sections of your business plan.

Like plants and equipment, people are resources­they are the most valuable asset a business has. You will soon discover the employees and staff play an important role in the total operation of your business. Consequently, it's imperative that you know what skills you possess and those you lack since you will have to hire personnel or take on partners to supply the skills that you lack. Additionally, it is imperative that you know how to manage and treat your employees. Make them a part of the team. Keep them informed of and get their feedback regarding changes. Employees often have excellent ideas that can lead to new market areas, innovations to existing products or services, or entirely new product lines or services that can improve your overall competitiveness.

This section of your business plan should answer the following:

How does your background/business experience help you in this business?

What are your weaknesses, and how can you compensate for them?

Who will be on the management team?

What are their strengths/weaknesses?

What are their duties?

Are these duties clearly defined?

If you need additional assistance, what type of assistance will that be?

Where can you get additional assistance if you need it?

What are your current personnel needs?

What are your plans for hiring and training personnel?

Will you cover all, part or none of the training cost?

What salaries, benefits, vacations, holidays will you offer?

What benefits, if any, can you afford at this point?

A synopsis of the operating procedures, manuals and materials that you develop for your business should be included in this section of the business plan. The actual documents should be attached as an addendum to your business plan.