Writing a Business Plan
The following comprehensive outline, compiled by the Ben Franklin Technology Partners, can be used as a template for crafting a business plan. You should adapt it to suit the nature of your specific business and/or the requests of your lender or investor. The end of this document contains tips for preparing financial documents such as cash flow statements, income statements, and balance sheets.
Name of Business, Address, Phone Number, Principals
Brief overview (1-2 pages) of the business, product/service, market, management, financial performance, financing needs and repayment plans
I. Business Plan
A. Description of the Business
1. History of the company status (startup or expanding).
2. What is the business form?
3. Who owns the business?
4. What activity does the business engage in?
B. Product or Services
1. Give a complete description of the product or service to be offered.
2. Explain the advantages, benefits, unique qualities of the product or service.
3. If appropriate, include photographs, portfolios, sketches, samples of the product.
1. Describe your target market.
2. Where is your target market located?
3. Is the industry growing or declining?
4. What do your potential customers want or need?
5. How will your business satisfy the target market?
6. Is your pricing competitive?
7. Why will customers pay your price?
1 Who are four key competitors (geographic competition and product/service competition)?
2. Describe your competitors
3. What are the strengths and weaknesses of each competitor?
4. How is your competitors' business? Steady? Increasing? Decreasing? Why?
5. How are your competitors' operations similar or different to your operations?
6. What have you learned from your competition?
7. How will your business fit into the marketplace with the competition?
E. Marketing Strategy
1. How will your product or service be sold?
2. How will you attract and keep the target market?
3. Describe your pricing strategy.
4. Describe your advertising, promotion and public relations plans.
5. What market research have you conducted? Include the results and a summary description.
6. How will you expand your market?
1. What is the business address?
2. Why is this location most desirable?
3. What are the physical features of the location?
4. Does the building space meet your needs?
5. Are renovations or expansions needed? What are they? What is the expected cost?
6. Is the space leased or owned? State agreement terms.
7. Does current zoning permit your type of business?
8. Is the location visible and accessible from the roadway? Is there adequate parking?
Will you depend on walk-in trade?
G. Production Plan or Supplier Network
1. How, where, and by whom will your product be produced?
2. What raw materials are needed? Are these readily available?
3. What is the manufacturing process?
4. What is the anticipated rate of production?
5. Who are your primary suppliers?
6. What are supplier payment terms?
1. Include the personal history of each principal.
a. Business background
b. Management experience
c. Industry experience
d. Education: formal and informal
e. Specific skills and abilities to contribute to business
2. Describe related work experience of each principal.
a. Direct operational experience in this type of business
b. Managerial experience in this type of business
3. Duties and responsibilities of management team.
4. Include an organization chart.
5. Resources available to business:
d. Insurance agent
1. What are your personnel needs?
2. What will be your future personnel needs?
3. Do you need full-time or part-time employees or independent contractors?
4. What skills will employees need?
5. Will the local labor pool meet your personnel needs?
6. Will a training program be provided?
J. Application and Expected Effect of the Loan
1. How will the loan money be spent?
2. Include an itemized allocation of funds.
II. Financial Plan
A. Financial Data
Source and use of funds
Capital equipment list
Pro-forma statements: 3-year projections
Cash flow (monthly)
Income statement (end-of-year)
Balance sheet (end-of-year)
Historical financial statements: for existing businesses only
Past 3 Years: Income statement, balance sheet, tax returns
B. Financial Proposal
III. Supporting Documents
Letters of intent from prospective clients
Letters of support from credible references
Lease or buy/sell agreements
Legal documents relevant to the business
Below are guidelines for financial statement preparation compiled by the Ben Franklin Technology Partners (BFTP). They explain the functions of the three types of financial statements you must typically submit as part of various loan applications: Cash Flow Statements, Income Statements, and Balance Sheets. If you feel daunted by the prospect of preparing such materials, you may want to consult an accountant, or take advantage of the technical resources listed elsewhere on this site. BFTP can also assist you in refining the financial elements of your business plan through its free preloan packaging services.
Cash Flow Statement
The cash flow statement is a record of all cash inflows and outflows for a business for any given period. There are two main sections to the Cash Flow Statement, incoming cash and outgoing cash.
The incoming section includes any cash received and available to the business for that particular period. The incoming section includes an opening cash balance, cash receipts and loan proceeds. Let's assume and that the business already has $1,500 cash available. For the first month of operations the business is projecting to receive $3,000 from sales generated for Month 1. Please note that only cash received, not cash earned, is recorded on the cash flow statement. (The difference is explained during the explanation of the income statement.) Let's also assume that the business is requesting a $10,000 loan from BFTP. Loan proceeds will normally be reflected once, in the month they are received. Totaling the three items results in total available cash of $14,500 for Month 1.
The outgoing section, more commonly referred to as disbursements, is where the business lists its expenses and the amounts paid toward each expense for any given period. Some common expenses are advertising, utilities, cost of goods sold, payroll, rent, etc. Some types of expenses will vary for different businesses. Just as with cash receipts, only actual cash paid out is recorded on the cash flow statement.
One item that should always be present on financial statements submitted for loan requests is interest. For example, assume that the business is requesting a $10,000 loan from BFTP that is amortized at 10 percent interest for five years. The interest expense listed for Month 1 is the sum of two semi-monthly payments.
This discussion also assumes that the loan will be used to make capital purchases, such as equipment, vehicles, furniture and fixtures for $10,000. All expenses are totaled and the result is then subtracted from the total available cash for that period. The resulting figure in the ending cash position for that period. Say this amount is $1,441. The ending cash for Month 1 then becomes the beginning cash for Month 2. The process of recording cash receipts and outlays continues for each succeeding month
The income statement is the record of a business's income activity for any given period. The income statement generally has three sections: income generated, the costs of goods related to the income, and operating expenses.
The section detailing revenue earned for a particular period includes all sales generated for that period. Let's assume that the business earned $85,537 in Year 1. Note that this amount is different form the cash receipts on the cash flow statement. Although the business may have generated $85,537 for Year 1, it only received $64,153, which is reflected on the cash flow statement. Again, it is important to note the difference between the two statements: the cash flow statement only includes actual cash receipts and expenditures, while the income statement includes revenue generated and expenses incurred. The difference in the two amounts is reflected as accounts receivable on the balance sheet.
The next item usually reflected on the income statement is the cost of the goods sold to generate sales. Our sample assumes that the business spent $12,831 to buy the goods necessary to generate $85,537 in sales in Year 1. The difference between these two items is gross profit.
The expense section of the income statement shows all expenses incurred by the business for a particular period. One expense item that will normally be shown on an income statement, but should never be shown on the cash flow statement, is depreciation. Depreciation is an expense item that is used by businesses to recapture periodically the cost of capital expenditures and reduce its before-tax profit. Depreciation is sometimes calculated by dividing the value of an asset by its useful life span. Our sample assumes that our assets have a useful life span of ten years. Thus, we have $10,000 in assets divided by ten years for a depreciation expense of $1,000 per year.
As with the cash flow statement, interest expense is also reflected on the income statement. Just as the sales generated are not always received immediately, some expenses are not always paid immediately. Note the advertising and promotion expense on the income statement. Let's say the business incurred $2,566 for Year 1, but actually paid out only $1,283, which is reflected on the cash flow statement. All expenses for a period are totaled and subtracted from the gross profit for that period and the result is the net income or loss.
The difference between all expenses incurred, less depreciation, on the income statement and all expenses paid on the cash flow statement is reflected as accounts payable on the balance sheet.
The balance sheet reflects a business's assets, liabilities and net worth. The assets include such items as ash, equipment, accounts receivable, etc. Liabilities consist of accounts payable, notes payable, etc. The net worth is the difference between the assets and the liabilities.
Assets are usually segmented between current assets and fixed assets. Cash and accounts receivable are categorized as current assets. The cash amount shown on the balance sheet should be the exact same amount from the cash flow statement for any given period. Assume the business's ending cash position is $18,610 at the end of Year 1. Accounts receivable on the balance sheet is the difference between the sales generated from the income statement and the actual cash received from those sales.
Let's say your fixed assets consist of the $10,000 worth of assets that were purchased with the loan proceeds. The funds were used to purchase furniture and fixtures, vehicles and equipment. The accumulated depreciation is the amount that was calculated earlier, during the explanation of the income statement. This amount is deducted from the initial value of the fixed assets. Current assets and net fixed assets are totaled to reflect total assets.
Liabilities are also segmented between short-term and long-term. Short-term liabilities are generally due within twelve months. Long-term liabilities are normally due after twelve months. Accounts payable are categorized as short-term. The accounts payable on the balance sheet is the difference between the income statement expenses, less depreciation, and the cash flow statement expenses. Current portion of long-term debt is the amount of loan principal due within the next twelve months. The amount we're considering here is based on a 10 percent, five-year amortization of the $10,000 loan request. The note payable is the amount of the outstanding loan principal, less the current portion. All liabilities are then totaled and deducted from total assets. The result is the net worth of the business.
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