The success (or failure) of any business is contingent upon the business plan; if you do not have a business plan, how can you possibly gauge your results? How do you know if your business is meeting expectations?
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What Comprises a Business Plan?
The Financial Projections are likely the most important piece of your business plan. This is where you will detail your income (revenues from the sales of products and services), your cost of goods sold (direct expenses related to your revenues) and your Administrative or General Expenses. Some Financial Projections may add additional detail such as selling expenses, research and development expenses and deferred costs.
Revenues: When building your financial projections, you should provide details of your different revenue streams; for example if you sell products and offer repair services these should be indicated as 2 separate lines on your projections. Furthermore, if you have additional income sources such as Freight & Delivery, Rental Income etc., you should break these out as well, especially if they are significant in relation to your total projected revenues in a given year.
Cost of Goods Sold (Direct Costs): Cost of Goods Sold (COGS) includes all items directly related to your income. For example, if you are selling refigerators, your COGS would include the price you paid for the refrigerators, freight and delivery paid to get the items to your warehouse, and customs fees and currency exchange costs (if importing); If you are providing repair services, the wages for your repair technicians and the related payroll taxes would be included in your COGS.
Administrative and General Expenses: You may sometimes hear these items referred to as ‘overhead’ costs or ‘fixed’ costs, the reason being that there is generally little you can do to control these costs. Examples of Administrative expenses include your Rent, Telephone Costs, Office Supplies, Utilities and Advertising.
Financial Expenses: Your financial expenses include items such as interest paid on loans, bank charges, credit card processing fees and late payment penalties.
Your ‘Business Plan’ sometimes referred to as the ‘written portion’ is a very important document in the sense that it demonstrates to the reader that you have invested time and effort in researching numerous aspects of your business. It will also descrbe your reason for creating the plan and what you expect to gain as a result (in most cases financing).
The Written Portion contains several key elements including:
Statement of Purpose: This section to the reader the reason you created the plan, what you expect to gain and a few other key items in a very clear and consise fashion.
Executive Summary: This section will give the reader an overview of the history (if applicable) of the business and a brief summation of where the business is expected to go in the future; it should tell the reader why the business is sustainable and any other key features of the business.
Market Research: This can be a very large component of your Business Plan! The readers want to know that you have done a great deal of your homework to ensure that you understand some key operating factors such as:
Area Demographics Industry Statistics Competitors (direct and indirect) Key Partners / Strategic Alliances
Business Description: This area, similar to Market Research should be as detailed as necessary to ensure that the reader knows exactly what your business does (or intends to do). It should outline the benefits of dealing with your company, your competitive advantage and any other relevant information; you need to treat this section very delicately, assuming that the reader has never heard of your business and has no idea as to what your business does.
Marketing Plan: You can have the greatest business in the world, but how will you do if you have no customers? Your marketing plan must detail how you propose to get those customers. What types of advertising mediums will you utilize? How ofter will you advertise? Do you have a Social Media Marketing Component? If you plan on utilizing various marketing initiatives during different times in the year, this should be well documented along with the reasons why.
Management & Human Resources: Who is going to run your business and what qualifies them to do so? This is a very important question! If you require a wide range of staff and very specific skill sets, you should outline this along with the expected range of compensation (this will have to be reflected in the Financial Projections)
Summary: This section should summarize the Plan and state reasons why your request for financing (if applicable) should be approved, along with justifying points
Financial Assumptions: This section should describe to the reader, in detail, the assumptions that you used in the creation of your Financial Projections.