How to Prepare a Business Plan
A written business plan helps you to think through your business ideas so that you see the weaknesses and strengths of your venture more clearly -- and it gives you the opportunity to address any concerns ahead of time.
You can also use your plan when meeting with advisors, business partners, banks, and more so they can objectively and constructively help you think through your new business idea. Your goal is to execute this plan into action.
Your business plan should include the following items:
- Legal name of the business
- Owners names and percent of ownership
- Information on the business
A. Type of Business
- Outline the general and specific nature of the business.
- Outline the company's goals and objectives.
- Describe your products and/or services. State who buys the product and who the final users are (be brief here, because you will be discussing your customers thoroughly under Market Analysis).
- Describe how the product or service is sold to customers (walk-in stores, sales representatives, mail order catalogs, telephone orders, Internet orders, etc.).
- Comment on quality of product/service.
- Estimate average price of product/service.
- If your business is new, say so. If you have an existing business, discuss age of the company, prior owners, how the business was acquired and length of time operated by you, the public image or reputation of the company, number of employees, last year's sales volume and profit and any significant events that have affected the company's development.
C. Business Location
- Describe size (square footage) and building amenities.
- State whether rented, leased or owned. If rented or leased, state from whom and under what conditions. Provide a copy of your lease.
- Describe type of access to building (major roads, freeways, walking, parking, etc.). Is the location convenient for customers and, in general, good?
- State business hours.
- State current and future figures for number of employees and type of labor (skilled, unskilled, etc.). State sources of labor and timing of hiring (or layoffs).
- Describe how this business makes money.
- State how and by whom prices are determined.
- State what financial records will be kept, and who will keep them.
- Describe what inventory, raw materials and/or supplies the business uses (initial and continuing).
- List your suppliers -- name, address, type and percent of supplies furnished, and length of time you have been buying from each, reliability and frequency of purchase.
- How easy or difficult is it to get necessary supplies? If it is difficult, how will you deal with potential or actual shortages?
- Are the prices of your supplies steady or fluctuating? If fluctuating, how will you deal with changing costs?
- State form of business (sole proprietorship, partnership, corporation) and status (not yet applied, applied and pending, obtained).
- State licensing agreements (type and licensing source) and status (not yet applied, applied and pending, obtained).
- State franchise agreements and status.
- State zoning requirements and status (verified, OK, rezoning).
- State insurance requirements (type, source) and status.
- Describe compliance with building codes.
- State compliance with health code requirements.
- Describe any other laws and regulations that affect the business and the measures you have taken to comply.
- Trademarks, patents, licenses and copyrights should be checked for legality.
H. Future Plans
- Explain the plans for your future -- whether to maintain, expand, diversify, sell, etc.
4. Market Analysis
- Define your market and your customers (wholesalers, retailers, consumers, government, etc.).
- Why does this market need your product/service? Is your product or service a fad or a continuing need? Will it soon be phased out or recreated by a new technology?
- List the characteristics of your typical or average customer including: age, location (market area), average income/sales, employment and other important information. The more you understand about your market, the better you can sell to it.
- What do customers like and dislike about your product or service?
- Estimate the size of your market in terms of number of customers.
- Estimate how much the total market will spend on this or similar products or services in the next year.
- Discuss any external environmental factors (economic, legal, social or technological) that affect your market or product/service. Environmental factors are those that have significant effects on your operation, but over which you have no control, i.e., county growth, rising energy prices, etc.
- Discuss the number of your competitors (direct and indirect) and their location, age, reputation, size, market share, etc.
- For your major competitors, discuss, in detail, their product/service features, pricing, location/distribution, reputation/image, size (in sales or number of customers), changes in market share, etc.
- Discuss how your product/service meets market needs and how you compare with the competition in terms of product/service features, location/distribution, price, other.
- Compare your estimates of the market's demand and the competition's supply.
5. Market Strategy
A. Sales Strategy
- Present your marketing strategy. Tell how you will get the edge on your competition and get customers. This is your action plan to get business.
- Your product/service will sell because one or more of the following is attractive: features, pricing (high, medium, low), distribution system (limited, widespread, etc.) and promotion.
- Describe how you plan to promote your product/service: advertising, direct mail, personal contacts, sponsoring events, word-of-mouth, trade associations, etc.
- If you plan to advertise, state what media you will use: website, social media, radio, television, newspaper, magazines, telephone book, Yellow Pages, billboard, etc. State why you consider the media you have chosen to be the most effective.
- State the content of your promotion or advertising: what your product/service is, why it is attractive, business location, business hours, and business phone number. When you are designing your advertising, remember you are selling to satisfy someone's need. Refer back to your Market Analysis to ensure you've designed your advertising with your target market in mind.
- For owners and key management personnel, present resumes, personal financial statements, and tax returns for the last three years.
- Describe prior experience that qualifies management to run this type of business. State how much time management will devote to running this business. Discuss local contacts that may assist you.
A. Sources and Uses
- Describe the project to be financed.
- State where the money to pay for the project will come from, and specifically how it will be used. The most common uses are equipment, leasehold improvements, inventory and working capital.
If the business is an existing one, include business tax returns and financial statements for the last three years. Financial statements should include:
- Balance Sheet
- Income Statement
- Accounts Receivable and Aging
- Accounts Payable and Aging
- Debt Schedule
- Reconciliation of Net Worth
For both existing and new businesses, project the following financial statements for the next 3 years (monthly for the first year, annually for the second and third):
- Operating/Income Statement
- Cash Flow
- Balance Sheet
Note: You might consider doing a best case, worst case, and most likely case with your projections. Be sure your underlying assumptions accompany your projections (i.e. Gross Profit = 60% based upon historical financials, Supplies = 2% sales based upon industry averages, etc.). Also, the sales and expenses in your projections should support the ideas presented in previous sections of your business plan (i.e. advertising expenses should include Yellow Page advertising costs, Grand Opening expenses, Website costs, etc. if described as such earlier in "Market Strategy").
Checklist for Going into Business in Minnesota
If you are thinking of going into business, or branching out an existing business, here is a helpful checklist as you begin your preparations.
- Prepare a comprehensive business plan. Anyone who extends credit to you (lenders, suppliers, equipment and property lessors) will ask to see it. We have information available at the bank to assist you in preparing a business plan.
- Phone the Minnesota Small Business Assistance Office at (651) 296-3871 or visit the Minnesota Small Business Assistance Office website. Ask for a free copy of A Guide to Starting a Business in Minnesota.
- Thoroughly estimate your start-up costs. These include: rent, supplies, telephone, insurance, opening inventory, license and permit fees, legal and professional fees, fixtures and equipment, decorating and remodeling costs, advertising and promotion costs, salaries and wages, utility deposits, and adequate cash reserves.
- Have a record system in place that keeps track of all of your income and expenses, inventory, payroll records, and tax reports. Have an accountant who will help you with your record system and financial statements (preparation and interpretation).
- Insure your business for property damage, business interruption, key person life, liability, workers compensation, health, and product liability.
- Identify how to price the goods and services you sell.
- Identify your suppliers. Have firm agreements with them in place before you start (i.e. terms, prices, ordering policies, delivery schedules).
- Establish customer payment policies including check cashing and writing, regular payment terms, extended payment terms, and use of credit cards.
- Have job descriptions and work policies in place for all employees. Determine benefit packages, keeping in mind such things as payroll tax, health and/or life insurance, retirement plans, vacation, sick leave, and training.
- Determine the type of business organization that is best for your company -- proprietorship, partnership, or corporation. This will have tax, liability, and management control consequences. An attorney can advise you which type might be best for you.
- Set up a company bank account that is separate from your personal account.
- Register your business name with the Secretary of State's Office. If you are a corporation, file with the Secretary of State.
- Minnesota businesses will need one or more tax identification numbers, including the Federal Employer Identification Number, the Minnesota Taxpayer Identification Number, and the Minnesota Unemployment Compensation Employer Identification Number.
- Businesses engaged in making taxable retail sales or providing taxable services would need a Minnesota Sale and Use Tax Permit.
- The state, counties and municipalities of Minnesota may require one or more licenses for your business. For the state, check with the Minnesota Small Business Assistance Office; for the county and city, check with local government offices about permits and codes (building, fire, health, etc.). Franchise businesses should contact the Minnesota Department of Commerce.
- Make sure that the location you select for your business is properly zoned for your type of business.
- New Ulm Chamber of Commerce , (507) 233-4300
- Region IX Development Commission , (800) 450-5643
- Southern Minnesota Initiative Foundation , (507) 455-3215
- City of New Ulm Economic Development Authority , (507) 359-8233
- New Ulm Economic Development , (507) 233-4305
- Secretary of State
- Minnesota Business Connection
- Minnesota State University, Mankato - Small Business Development Center. (507) 389-8875
- Minnesota Department of Employment and Economic Development. (800) 657-3858
- Minnesota Small Business Management. (651) 297-1484
- Service Corps of Retired Executives (SCORE), (800) 634-0245
- US Small Business Administration (SBA), (612) 370-2324
- US Business Advisor (SBA's)
- SBA Women's Business Association, (202) 205-6673
- Minnesota Angel Network