If you want to become a Certified SCUBA Diver (as I am), you must first take a course to learn about the equipment being used, the anticipated dangers, and what to expect when you experience your first dive. A critical part of this training is to Plan Your Dive and Dive Your Plan. This is not just a clever phrase because, you see, if you stay down too long, you DIE. If you come back to the surface too fast from certain depths, you DIE. Not surprisingly, most divers will prepare their Dive Plan and adhere to it.
This Essay will discuss a Business Plan, why this is so important, and some ideas on how to structure the plan. No, you will not die if you do not prepare a Business Plan, but your business will have a much greater chance of success if you do. You may also sleep a little better having a solid plan prepared.
Why have a Business Plan?
One reason for preparing a Business Plan is that if you go to a Bank or potential investors for startup funds, this will be one of the first things asked for. They will want to know such things as
What are your qualifications/experience for running the proposed business?
How is the business to be organized, such as Sole Proprietorship, LLC, C-Corp, etc.?
The bank will need the letter from the IRS issuing the EIN number and articles of organization that were submitted to the state.
If the business is a partnership, then the state will require the Partnership Agreement.
How will the business be financed at startup and going forward, including owners’ funds?
Show us a copy of your business plan, including forecasted financial reports and other items, as shown below.
Another great reason for preparing a Business Plan even if you do not plan to utilize outside funds is that the probability of success is much greater having gone through the process of developing a well thought out Business Plan.
In a May 2023 article by LendingTree quoting Bureau of Labor Statistics (BLS) data, the failure rate of new businesses is 20.8% the first year, 48.4% by year 5, and 65.1% by year 10. Later in this same article, it states, “Some business owners doom their businesses from the start by failing to do the proper research and come up with a sensible business plan. For example, you must understand your target customers and your primary competitors and have a sense of how you can make money.”
Business Plan Outline
The following is a basic outline of the elements that comprise a Business Plan. Keep in mind the details may vary depending on your business, and it is recommended as part of your plan, you establish trusted relationships with an Attorney, Business Banker, Insurance Agent, Accountant, Business Planner, and perhaps other advisors to help during the planning process. If you plan to have partners in the business, be especially careful to have a well-thought-out Partnership Agreement in place written by an attorney experienced in this type of document, but this is a topic for another discussion.
Basic Elements in the Business Plan include but are not limited to the following;
Advisory Board: Assuming you are not starting a large corporation or non-profit organization, you may want to consider having a list of people you trust in a variety of disciplines or perhaps other business owners to act as advisors to the business at startup and throughout your operation of the business. It is great to learn from other’s mistakes so you can avoid them yourself. Being able to discuss various aspects of the business with others who have been through similar experiences can help you avoid problems in many cases or find a way through problems if unavoidable. Note that this is not the same as a Board of Directors, which large corporations or non-profits must have, which has binding authority over the organization. If sensitive issues are discussed, and probably will be, you may want to consider having your advisors sign a Non-Disclosure Agreement.
Executive Summary: This provides a top-level summary of the business. What are the products and services, who are the customers, who are the owners, and what the future holds for the business and the industry in general.
General Company Description: This section should include the mission statement, form of ownership, company history, core competencies, significant challenges to be faced, and long-term plans for the business.
Products and Services: Describe your products and services in some depth. Include technical specifications, drawings, photos, or other documents that can be included in the Appendices. What is the price or fee structure?
Marketing Plan: How will you bring the products or services to market? Be detailed. What is your niche, and what marketing strategies will you use to draw customers to the business? Be specific and detailed, including anticipated related costs. What is the size of the market? Is it growing? How much of the market do you expect to capture, and by when? What are your products/services demographics? Who are the competitors, and how do they compare? Spend time preparing a detailed analysis. You are preparing your “Battle Plan” for marketing, and there will be winners and losers.
Operational Plan: How will you produce your product? How will you control quality, customer service, inventory control, and product development? Where will you locate and why? What are your business hours? How will you deliver your product or service? Have you satisfied all legal requirements and safety requirements? How many employees and at what positions? Who does what? How much inventory do you need to maintain? Who are your suppliers? What are your credit policies, and how do you handle Accounts Receivable and Accounts Payable?
Management and Organization: List your key outside professionals such as the Board of Directors, Attorney, Accountant, Insurance Agent, Banker, Consultants, and Key Advisors. Prepare an Organizational Chart listing key personnel you plan to have in the organization, such as the President, General Manager, Operations Manager, etc.
Personal Financial Statement: This will be required if you plan to go to outside sources for financing. It may also be needed for potential vendors, for which you may need to personally guarantee payment until the business has more assets.
Financial Plan: Prepare a minimum of 12-month Profit and Loss Projection, Sales Plan, Projected Cash Flow, Projected Debt Schedule, and Projected Balance Sheet. Prepare a break-even analysis to show the sales volume needed for the business to become profitable.
Risk Assessment: Identify potential risks and how to mitigate that risk.
Exit Plan: Some may think it premature at the inception of a business to include an Exit Plan, but this is actually a very wise addition to your plan. At some point, you will exit your business, and it is best to have a predetermined plan. Part of this for a Partnership is how the death or exit of a partner is to be handled. This requires a written Partnership Agreement with Key Man Insurance, related to the death of a partner.
The above is a generic list of what is suggested and will vary depending on the type of business being considered. This may seem like a lot of work, and it should be, but the process will force the potential business owner to consider most of what will be encountered at the start of the business. Is it all-inclusive? No. Will everything go as planned? No. On the other hand, the more planning you do at the start of the business, the smoother things will go and the better capable you will be to handle the unexpected, which will inevitably happen. Murphy’s Law states that “whatever can go wrong will go wrong” is true in business, so the better prepared you are, the less the impact of “surprises” on the plan.
This Essay is intended to prepare those contemplating a new business to consider the opportunities and pitfalls of the new business process. Starting a new business is exciting, exhilarating, fascinating, and, yes, a bit frightening. That is the reason I started with the example of SCUBA diving and “Plan your Dive.” Fear motivates the SCUBA diver to follow the plan, but the excitement of what will be experienced in the dive keeps us going back.
I wish the reader all the best and if you have further questions, please contact your Summit Companies Consultant.
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