Beacom School of Business Small Business Development Center

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Frequently Asked Questions

Frequently Asked Questions and Answers about Business Plans
  • What is a business plan?
  • Why start with a Market Analysis for my product or service?
  • Where do I find information on my industry?
  • What about the competition?
  • How do I make a sales projection?
  • When do I discuss my product and services?
  • What is this "supply and demand thing?"
  • What is a feasibility study?
  • What is a marketing strategy?
  • How do I create a Cash Flow Statement?
  • What is a Profit and Loss Statement, Cash Flow, a Balance Sheet, and an Income Statement?
  • Do I need a Management Plan?
  • What is an Executive Summary?
  • Is there a difference in how I develop and how I present the Business Plan?
  • Is there a basic Business Plan Outline? Should I use business plan software?
  • Where can I get help with regulations when developing my business plan?
What is a business plan?
  • Developing a business plan is the first stop to a successful business. The Business Planning Guide will provide an outline in organizing your effort to gather and evaluate information about your business. As you gather information, you can begin the process of writing your business plan. By planning your business needs, you will develop an essential part of the business – its strategy. Effectively completed, your business plan must identify the strengths, weaknesses, opportunities, and threats that may affect your business and the strategy you will use to succeed.
Why start with a Market Analysis for my product or service?
  • A common mistake is thinking that "My product/service is the greatest thing since sliced bread and everybody will want it." Supply side thinking is the first great mistake of many failed, entrepreneurs. Those who succeed identify target markets, learn about their needs and provide the appropriate bundle of goods and services to meet those needs.
  • There are two common definitions of marketing. The first is selling something you already have. The second more complete definition involves discovering a need and filling it! An old business adage states "nothing moves in business until you sell something." Smart business people identify sales opportunities first. So please table your product and service ideas until after thoroughly researching the marketplace.
  • Find out as much as possible about the industry you want to enter. Is it emerging, growing, stable or declining?  What are the trends? Who buys? What do they buy, or leave on the shelf, and what are they asking for? How much do they buy? When do they buy? What percentage of the population buys? What is the demographic profile of each target market?
Where do I find information on my industry?
  • The Small Business Development Centers have industry related information available for your research, including Annual Statement Studies by The Risk Management Association (RMA), Sales Tax Statistics, Statistical Abstract of the United States, Industry Norms & Key Business Ratios, and the South Dakota Labor Bulletin.
  • Virtually any industry you can imagine has a professional association that gathers data and processes it into useable information for their membership. Go on-line and search for "(your industry) association". Look for an association that provides statistics. Many will publish trade magazines, newsletters or e-letters. They may also provide membership or vendor lists, although this information is usually only available to members. It may be a good idea to become a member. If you do not have internet access, go to your local SBDC or the business reference section of the library and research the Encyclopedia of Associations, Statistical Abstract of the United States, Annual Statement Studies by The Risk Management Association (RMA), and Dunn & Bradstreet Annual Statement Studies. In addition, there is a list of web sites to help you found in "Q25." These resources will provide you with statistics about your industry and your consumer.
  • Apply the national statistics to your local demographics. If three percent of the national population uses the product and your local population is 100,000 then you can expect 3,000 potential customers. Then consider identifying your target markets. Are there under-served markets with pent-up demand in your area? You may create a market niche by supplying the products and services they can't find elsewhere. Are there opportunities to sell to government agencies, clubs and user groups or business to business? Select those markets that have the greatest potential for success, as you define it. That may include profit, return on investment, long term sustainability or some other valuation you may choose.
What about the competition?
  • First let's dispel one of the common myths that "I have no competition!" Even though there may be nobody in their demographic area providing the same product or service, most competition is for discretionary dollars. Therefore, they are in competition with anybody who wants to sell anything.
  • You need to identify all competitors and analyze their strengths and weaknesses to determine how you can best compete. Realistically estimate what percent of the consumer population (market share) will become your customers, and why. There are only two ways to get customers in a competitive market. Either develop new customers or take them away from your competitors. Also, study the competition for ways to become cooperators rather than rivals by buying or selling from each other.
How do I make a sales projection?
  • Now that you have found what people are willing to buy you need to make a sales forecast.  The Small Business Development Centers have a computer software program that they can assist you with doing your projections. After studying the industry, consumer profile and the competition you have enough information to do some simple projections. For each of your chosen target markets, estimate your market share in number of customers. Based on consumer behavior, how often do they buy per year? What is the average dollar amount of each purchase? Multiply those three numbers to project sales volume for each target market.
  • To get better numbers for your projects try asking your competitors – or locating a business similar to yours, in a community like yours, that's far enough away so you won't be considered a competitor, then ask them. Better yet, go there. Take the owner to lunch. Walk around, observe, take advantage of good ideas, and avoid the bad. Then go back home and forecast your sales!
When do I discuss my product and services?
  • Once you've projected sales based on what you think your customers will buy you're ready to talk about your product or service. The projections should help determine the products and services you will sell. Describe them in some detail. Briefly summarize your analysis of your competition and your competitive advantage. You might also want to briefly summarize your pricing structure.
What is this "supply and demand thing?"
  • You did the market research. If customers don't demand the products and services you want to supply, then they won't buy them. That's the basis of the free enterprise system and the economic model. Informed business people determine what consumers demand and then supply it to them. It's a lot more effective and efficient to sell people what they want to buy than it is to "create" market demand. That leads us to the next part of the planning process – the Feasibility Study.
What is a feasibility study?
  • The question remains: is this business financially feasible? You've already projected sales. How much will it cost to achieve that level of sales? Start with fixed costs like rent, utilities, insurance and salaries. Then calculate the variable costs of sales including cost of goods sold, hourly wages, shipping, etc. Subtract the cost of sales from the sales forecast. This is your Gross Margin. Subtract the fixed costs you identified from the Gross Margin. If the remainder is less than zero, then the project is not feasible. If the number is positive, is it large enough to justify the risk? Starting or growing a business requires financial risk. If the business idea does not meet your financial requirements, then invest your money in something that does.
What is a Marketing Strategy?
  • The Marketing Strategy is a plan for selling your products and services to identified target markets. You studied the industry, identified target markets, and determined their buying behaviors. That defines the products and services you will supply to meet pre-determined demand.
  • The 7 Ps of Marketing includes the following:
    1. Profile (of the industry and consumers)
    2. Products and Services
    3. Position
    4. Pricing
    5. Payment
    6. Placement
    7. Promotion
  • The industry and customer profile and the product and services to be offered and currently available in the market place make up the Market Analysis.  The Marketing Strategy then consists of the remaining components: Position, Pricing, Payment, Placement and Promotion. To develop your Marketing Strategy, you must determine "how the customer wants it" for each component.
    1. Position in the marketplace includes the business image and competitive advantage or difference. The best advantage is an in-depth understanding of your customers and the closest possible match of products and services to meet their demands. When a customer enters your store, catalog or website they need to feel that they are in the right place to satisfy their needs.
    2. Pricing strategy must satisfy three criteria.
      • The customer must believe the price is fair and reasonable.
      • The price must include a fair profit
      • Price reflects your position with regard to competitors.
    3. Payment strategy includes methods of payment and credit terms and policies. Remember, the best answer is "the way the customer wants it." If you don't provide the payment options your customers demand, their purchase may be made from your competitors.
    4. Placement includes all aspects of your distribution channels including shipping, storage, inventory and display. Are you a retailer with a store front whose customers come to you and take their products home or do you ship them? Are you a "virtual retailer" and take orders for your merchandise and ship the sale? How do you ship your merchandise? Do you have inventory on hand or do you receive an order and have the products shipped by your supplier {drop shipped)? Who are your suppliers? Are they wholesalers or the producer? Again the answer to the question of how to get your products and services to your customer is "the way the customer wants it!"
    5. Promotion. The first assumption most people have about a Marketing Plan is that it is all about promotion and advertising. Please note that it is the last component of your Marketing Plan. Until you have identified your target customers, determined the appropriate bundle of products and services, defined you market position, calculated pricing and set up your payment and distribution systems you won't know how, what, where, when and why to promote and advertise! After developing the rest of the Marketing Plan promotion and advertising becomes transparent and obvious. There are two parts to promotion and advertising; the message and the medium. The message should address the needs and wants of your target customer. Identify their problems, then apply them to your business to provide a solution. Your message should inform, persuade or remind your customers. Select the media that your target customers are most likely to read, see or hear. Keep in mind that a well trained and customer-oriented sales staff is the best marketing investment you can make.
How do I create a Cash Flow Statement?
  • All your projections should be based on careful research, not casual guesswork. Keep notes detailing your major assumptions, and include the notes as an attachment to your projections. Your projections will show how you intend to prosper by having revenues exceed expenses. Now you must show that you can pay your bills while prospering. Bills are paid with cash, not with profits. A cash flow projection is nothing more than a forward look at your checking account. Formats are readily available. The Business Planning Guide reference above has a worksheet for documenting this information.  Your local SBDC office has a software program and will assist you in preparing a cash flow statement along with other relevant financial projection documents.
  • You have projected sales in your Marketing Plan and costs in your Feasibility Study. Now it is time to put the "timing" element into your plan. A Cash Flow projection simply states when income is received and when expenses are paid.
  • After entering these sales by department or category, enter the Cost of Goods Sold (COGS) for each category of sales for each month. COGS are those expenses directly related to producing or purchasing the product/service you sell. For example: for retailers, COGS is the cost of buying merchandise; for manufacturers and construction, it is direct production, labor, and materials; for service businesses, it is production, labor, and materials. Breaking COGS down into departments will help you see which parts of the business deliver the most profit per sales dollar.
  • Now estimate operating expenses month by month for the year. These necessary expenses are not directly related to buying or making your product/service. They are also known as overhead items. Examples are: telephone, rent, insurance, taxes, and the salaries of office, sales, and management personnel. If adequate, use the same categories of expense you use (or plan to use) in the regular Income Statements you get from your accountant. This makes it easier to draw on history in making projections, and it makes it easier to compare your actual statements to your plan as time goes by.
  • By forecasting the status of your bank account, the Cash Flow tells you if your working capital reserves are adequate. Budgeting does not create sales or put money in the bank, but it can help put you in control. When you know how much the off season will draw down your account, when you begin negotiating that new bank loan months in advance because you can foresee the need, then you have gained a little more control over your own destiny.
What is a Profit and Loss Statement, a Balance Sheet, and a Schedule of Events?
  • A Profit and Loss Statement answers the question whether or not you made any profit. It considers when a sale is made and an expense incurred rather than when the check is received or written.
  • Some items belong to the Profit and Loss while others belong to the Cash Flow Statements. Depreciation, for example, is a real business expense, but not an item of cash flow (you never write a check for depreciation). Prepaid expenses are a Cash Flow item but only the portion for the current period is recorded on the Profit and Loss. On the other hand, the principle part of a loan repayment is not an expense (only the interest portion is), but it definitely takes cash out of the business, and therefore needs to be shown on the cash flow projection.
  • Your plan should include a projected balance sheet showing assets (things owned), liabilities (debts), and owner's equity.
  • If yours is a startup business, the balance sheet should show your financial position on opening day and at the end of subsequent years. Existing firms should do projected year-end balance sheets as well.
  • A Schedule of Events is a timeline to guide you in developing and growing your business. It lists chronologically the various critical actions and events that must occur to bring your business to fruition. Be sure to assign real, attainable dates to each action or event.
Do I need a Management Plan?
  • The Management Plan reveals who will be responsible for the various management functions to keep the business running efficiently. It further demonstrates how that individual has the experience and/or training to accomplish each function. It is necessary to address who will do the planning function, the organizing function, the directing function, and the controlling function. Include an organizational chart to visually present your organization and responsibilities.
What is a Plan Summary?
  • The Plan Summary is developed primarily for others to read. It includes a Table of Contents, an Executive Summary, a Sources and Uses of Funds Statement, a History and Description of Your Business, and Resumes of Key Personnel.
  • The "Executive Summary" is a concise summary of each section of the business plan. It is usually no longer than two pages and enables outside readers to get a picture of your business in a very brief time. This is your opportunity to capture the interest of a lender or investor! The "History and Description of Your Business" explains the history of your business (if you have one), your concept, what you do, and briefly describes your customer from your marketing plan. Further, it discloses your location and key strengths. In addition, it introduces the business owners and the ownership structure.
  • The "Sources and Uses of Funds Statement" is simply a listing of all the sources of funds. This would include the owner's investment, others investment, loans, and any other sources of funds for the business. Uses should be divided into segments such as real estate and buildings, improvements, capital equipment, location and administrative expenses, inventory, advertising, contingencies, and working capital. It should be clear that the sources should equal the uses!
Is there a difference in how I develop and how I present the Business Plan?
  • YES! The development model is designed to help you assemble the information necessary to help YOU bring together the information necessary to start and or grow YOUR business. If you plan to seek funding or other support, the information should be presented in a manner that is easily read and understood by someone who has no idea about your business. Most lenders or investors would find the following "presentation format" appealing. It tells them who you are and what you want within three pages. It may look like a lot of work, but relax. You have the work done. Now it's just a matter of cutting and pasting to make your business and its needs more presentable!
Do I need a Management Plan?
  • The Management Plan reveals who will be responsible for the various management functions to keep the business running efficiently. It further demonstrates how that individual has the experience and/or training to accomplish each function. It is necessary to address who will do the planning function, the organizing function, the directing function, and the controlling function. Include an organizational chart to visually present your organization and responsibilities.
What is an Executive Summary?
  • The "Executive Summary" is a concise summary of each section of the business plan. It is usually no longer than two pages and enables outside readers to get a picture of your business in a very brief time. This is your opportunity to capture the interest of a lender or investor!
  • The "History and Description of Your Business" explains the history of your business (if you have one), your concept, what you do, and briefly describes your customer from your marketing plan. Further, it discloses your location and key strengths. In addition, it introduces the business owners and the ownership structure.
  • The "Sources and Uses of Funds Statement" is simply a listing of all the sources of funds. This would include the owner's investment, others investment, loans, and any other sources of funds for the business. Uses should be divided into segments such as real estate and buildings, improvements, capital equipment, location and administrative expenses, inventory, advertising, contingencies, and working capital. It should be clear that the sources should equal the uses!
Is there a difference in how I develop and how I present the Business Plan?
  • YES! The development model is designed to help you assemble the information necessary to help YOU bring together the information necessary to start and or grow YOUR business. If you plan to seek funding or other support, the information should be presented in a manner that is easily read and understood by someone who has no idea about your business. Most lenders or investors would find the following "presentation format" appealing. It tells them who you are and what you want within three pages. It may look like a lot of work, but relax. You have the work done. Now it's just a matter of cutting and pasting to make your business and its needs more presentable!
Is there a basic Business Plan Outline?
  • As stated above, the South Dakota SBDC has a detailed business plan outline included in their Business Planning Guide.
Should I use business plan software?
  • While many of the available business plan programs provide usable products, they tend to provide a more "canned" product. In addition, by being a "fill in the blank" process, there is a danger that the writer will end up with fluff rather than investigating and thoroughly planning for his business. Investors frequently recognize canned programs.
Where can I get help with regulations when developing my business plan?
  • As part of the Business Planning Guide, the South Dakota Small Business Development Center provides contacts information for the various regulatory agencies that businesses generally deal with.  In addition, there are a multitude of information resources, both public and private, available through the internet or public libraries. Below is a sampling of those resources. These are provided for information purposes only. SDSBDC does not endorse any individual products or services.
    • http://www.state.sd.us  This public site provides a link to all South Dakota State agencies. It is useful in accessing information within the South Dakota State government.
    • http://www.state.sd.us/drr2/businesstax/bustax.htm  This is the Department of Revenue site for business tax which includes information on sales taxes and excise taxes. Under the "Statistics" link there are many reports on gross sales within the State of South Dakota by selected cities and by SIC code. In addition, many tax topics are covered.
    • http://www.sba.gov/ This site provides a link to the US Small Business Administration web site. This is a complex site but you can find information on SBA programs and other resources. Surf the library and you'll find information to help you in planning your business.
    • http://www.census.gov/  This public site is a major link to demographic and economic census data. To assist you in finding data there are a number of helps included in the web site. For instance, using "State & County QuickFacts" a statistical demographic profile can be had down to the city level. In addition, sales by NAICS code are available by state, by counties, and by metro areas.
    • http://www.bls.gov/cex/ This public site provides information on consumer expenditures nationally, regionally, and by selected metropolitan areas.