Business Planning 101

[musicmanryann]

In a discussion in another post yesterday, it was brought up that there may be many bretheren out there that would benefit from my relative experience and education in putting together business plans. This new thread is in response to that. I do not expect that I will be able to put it all together today, or even in the next week, but slowly and surely I will add to the thread the next logical point of discussion.

It is my sincere hope that people will be able to benefit from this information in putting together a proposal for their business idea, and that if anyone is out there that may know more or better than me on this subject, that I do not tick them off. Enjoy!

~Ryan

[musicmanryann]

Section 1
Why a business plan is needed to start a business

Okay—the first thing you have to understand about making a business plan why it is important to make one in the first place. The most important and prevalent reason people make a business plan is simply because they have enough money to bring their business idea into fruition themselves. Therefore, they must convince someone that their business idea is good enough that it will not only make money, but make enough money to pay back whatever the money the person gives you plus a hefty amount of interest.

There are many people from which you may get money to start your business typically these include:
· Family and Friends—In the form of a gift, a loan, or stock (partial ownership in the business)
· Banks—in the form of a loan with a fixed amount of interest.
· The Government—In the form of loans, or grants. Typically a lot of paperwork and bureaucracy.
· Venture Capitalists—in the form of loans, or stock. Venture capitalists are companies whose sole purpose is to go around finding the next great business idea and throw money at it.
· Angel Investors—in the form of loans, or stock. Angel investors are individuals with a lot of money to burn looking for the same thing as venture capitalists. Generally these people are hard to find.

There are positives and negatives with obtaining funding for your business each of these entities. For instance, if any of your family or friends has extra cash, this may be the easiest way to get start-up capital (cash, or other assets), but there is a chance that the business arrangement might get in the way of your personal relationship. In this case it is very important to formalize the business arrangement, to the greatest extent feasible, to deflect any future problems you may have paying back the loan or providing a good return on their investment from your personal relationship.

It is important to note that even if you have the greatest business idea since google, and put together the greatest, most polished business plan, and you sell it better than Donald Trump sells real estate, there is a 95% chance that you will have to ante up some of your own money in to the business. This is especially true with banks. Just like a mortgage they are looking for you to put your own money in before they give you a loan. Injecting your own capital also helps the financial projections you will make in the business plan, but we will get in to that more later on.

The other reason that people create business plans is to organize all of the ideas of their business in to one document. This reason for creating a business plan I feel is equally as important as trying to get money, and is many times overlooked. Ideas may sound good in your head, but once they get down on paper sometimes they lose their luster. Likewise, as you start to organize your ideas on paper, you will quickly realize that there are many things and details associated with starting up a business that you had not previously thought of. For instance, you may have a very good idea of where your business is going to be located, or how you are going to sell your product to customers and how much you are going to charge, but have do you need employees? If so, how many do you need, and how are you going to train them and how much will they get paid? A business plan will essentially build a roadmap for you to start-up your business in an organized way allowing you to focus on running the business, rather than having to make a thousand little decisions that should have been addressed prior to you opening up for business.

Next Section: The main parts of a business plan…

[Smokin Mike]

thank you so much for sharing this ryan,

mike

[getyourrubonbbq]

Thanks for taking the time to put this together. I look forward to seeing more.

[biffleg]

As someone who would like to venture down this path in the future - thank you for these postings - very beneficial!

[leanza]

We would pay a premium at what ever school, to have access to a knowledge base like this. Thanks very much. Please continue.

[musicmanryann]

Section 2
The main parts of a business plan

There are eight main segments of complete business plan:

1. Executive Summary
2. Business Description
3. Marketing
4. Operations
5. Management
6. Critical-Risks
7. Financial
8. Milestone Schedule

An abbreviated version would include the most important sections: the executive summary, the business description, marketing, and financials. A brief description of each segment follows, then in the following sections we will go into detail and provide examples of each one.

Executive Summary: It seems pretty obvious what this section is—a summary of the entire business plan. However, one cannot underestimate the importance of this section. This is due to the fact that most people will only read this section first to see if it is worth their time and effort to read through rest the document. At a maximum of three pages, this section should not only provide a summary, but be your “elevator pitch”, expressing eloquently and concisely why your business idea will make money.

Business Description: This section should give a very clear idea what kind of business you are proposing. The business’s potential should be clearly demonstrated, as well as a description of the industry in which you will be doing business. Most importantly this section should describe the uniqueness of this venture relative to other similar businesses in the industry and in your area.

Marketing: This is equally the most important part of the business plan as well the most difficult to do appropriately and effectively. This is the section in which you exhibit that your business will make money; that there is a market for your amazing idea. This involves a considerable amount of research in your industry and the area in which you will be doing business to show that--there is demand for your product, that the demand isn’t already being satisfied by your competitors, and that your product will fill that demand and/or-- due to the uniqueness of the venture—will attract market share from your competition. Based upon the demand that you have demonstrated you will be able to garner from the marketplace you will estimate what your monthly and annual sales will be in your first three years of business (at least). This section will also include your advertising and pricing strategies.

Operations: This section describes how and where your business will operate. You will describe in detail how many employees you will need and when you will need them. Hours of operation will be discussed, tasks to perform when opening and closing the business, and task to perform to allow the business to operated smoothly. Finally, it is important to discuss who will be supplying your business, and what and when they will be supplying.

Management: This section outlines the legal and physical structure of the venture.Describe the role of each management member and their compensation. Resumes of the management team should be included in the appendix. If there will be outside professional help i.e. lawyers, accountants, they should be listed in the plan as well.

Critical Risks: Every business, no matter how meek and mild they may be, has risks associated with them. The ability of a business and its management to effectively identify, abate, and mitigate its risk, determines to a large degree the long-term viability of the venture. It is important to sit down and openly and honestly identify all the risks associated with your business however small and minute in possibility they may seem. Once the list is finished and each has been described in detail, you should identify how these risks will be managed to lessen their potential for occurrence and/or lessen their impact once a risk is realized.

Financial: In this segment you display with real numbers that your business will make money. You will categorize and estimate all your costs (cash outflows) and revenue (cash inflows) and put them together to demonstrate a positive balance at the end of the month (optimally) or at the end of the fiscal year (necessary). A majority of this section will consist of financial statements and analysis including: the income statement, the balance statement, and the statement of cash flows, and break-even point. However there is some narrative required. This includes identifying first all your start-up costs. These are all the costs that you will incur prior to opening up your doors and receiving your first dollar of revenue. Next any item you put into the financial statements you will describe the assumptions that led you to determine the estimate of that cost or revenue. The statements that you will form as a result of the assumptions you make are called pro forma, essentially fancy jargon for financial projections, much like when you put together your home budget.

The Milestone Schedule: This section outlines indicators that demonstrate you are on the right track for your business plan. Prior to starting up your timeline to get things online prior to opening day, and once you have opened when you plan to reach a certain sales point or purchase the new cooker because you have outgrown your smaller one.

Next Section: General Business Planning Guidelines…

[Ken V]

Ryan, thanks for taking the time for this, this is excellent!!!

Ken

[Smokin Mike]

thank you so much for the info Ryan.

I can not wait for the next section, thanks

Mike

[StrikeEagle]

I'll add my thanks as well.

IMHO this should be a sticky at the top of the catering board. No new business should be with out a good biz plan.

[big brother smoke]

Thanks for the info. Once you are finished I will request that this becomes a sticky under "Getting Started"

[Dr_KY]

I am all over this thread.
Thank You

[musicmanryann]

Section 3:
General Business Planning Guidelines

Extra Sections
In addition to the main sections of the business plan as discussed previously, there are several other items all effective business plans should have. The first is a cover and title page. The cover should have the name of the company and all contact information on it as well as the date of the plan’s issuance. Inside the front cover should be a title page repeating the cover page information.

Following this should be the Executive Summary and then the table of contents. The table of contents should identify the titles and page numbers of each major section of the plan. It is important to note that for a long time in preparing documents with a table of contents I would make them by hand and if the page numbers changed I would have to update it accordingly. Microsoft Word allows a person to automatically create a table of contents that automatically updates the page numbers whenever you make changes to the document. Since I found this option, it has saved me many tedious hours of editing work. I will show you how to do this later on.

Finally, at the end of the document you should include appendices which would include resumes of the management team, articles of incorporation, and any other supplemental documentation that will benefit the reader.

Document Appearance
Every aspect of the document you present to potential investors should indicate that the person proposing the venture (you) are competent, professional, and able to treat the investment carefully. In other words, form is as important as function. Even if you see yourself as a laid-back casual person and that is what you desire to emulate as you run your business, when you are asking for money, you must “act” for a moment as if you are a stuffy business person.

The document itself must look attractive and professional. The binding—yes the business plan should not be stapled or paper clipped together—and the printing should be done by a professional, not on your home inkjet. Pages should be number and headers should be included indicating the title and section of the document. Footers should contain page numbers and perhaps the date of printing. Finally, all references you cite in your document should be either included as a footer or end notes at the end of the document, but prior to the appendix.

If you do not consider yourself a writer you should start by putting together a rough draft of the document and find someone who is. This may even involve paying a professional, or you could use a family or friend that you consider a professional writer of business documents. Some universities also offer services to fledgling businesses trying to put together business plans; they may be a good resource as well. The important thing is that you are consistently communicating in your document that you are competent and professional—good writing skills and grammar is important to these ends.

Length
You business plan should provide all the information necessary and feasible for a potential investor to determine whether or not they should invest in the business, however it should not be a tome. The document itself should not be more than fifty (50) pages, with forty (40) being the ideal. Any longer and it becomes too much of a chore for an investor to thoroughly read through the document, and it therefore loses it’s effectiveness. The content should be thorough, but the language concise.

In the following installments of this crash course in business planning, what I will do is go section by section and provide real-time examples of each section as I create them for my own catering venture I am trying to get started. Hopefully a good discussion will ensue as each section is presented. This may take a considerable amount of time, so please bear with me.

[leanza]

Thank you very much.

[Smokin Mike]

Ryan thank you for your time writing this, and the hard work it takes

Thanks,