How to write a Business Plan

How to write a Business Plan Now4Life www.now4life.org Why do you need a Business Plan? • To logically think through all parts of your business. • To understand the risk, and take only the amount of risk you are comfortable with. • To understand how you are going to market. • To evaluate different options, without expending money or effort. Now4Life www.now4life.org Successful Business Good Product or service Marketed correctly Produced efficiently Successful Business Now4Life You have to do more than one thing Right to be successful! www.now4life.org Elements of a Basic Business Plan • Executive Summary – Mission Statement – Company structure – Description of product or service – Why is the opportunity available to you? – Who are the customers? – How will you know if you are successful? • Marketing Strategy – Strategy – Channel to market – How to promote, market product – How to price your product • Operations Plan • Financial – Start up costs – Income statement – Break even analysis • Marketing analysis – How big is the market? – How much revenue or market share can I get and how fast? – How will I get to market? – Who is the competition? Now4Life www.now4life.org Elements of a Basic Business Plan • Executive Summary – Mission Statement – Company structure – Description of product or service – Why is the opportunity available to you? – Who are the target customers? – What is the projected life of the business? – How will you know if you are successful? Now4Life www.now4life.org Executive Summary • Mission statement – short paragraph that describes your mission as a business. “Clean Water Company will provide quality clean water technology, ongoing reactor service and hygiene information to local customer’s homes to improve their health giving them a new quality of life”. Now4Life www.now4life.org Executive Summary Company Structure Decide whether to be: – Sole proprietorship – your own business, 100% ownership – Partnership – You share a percentage of the ownership with another person(s) Then become – A legal Corporation registered with your government Now4Life www.now4life.org Executive Summary • Description of product or service Clean Water Company will manufacture and supply water filter reactors, hygiene instruction, and provide periodic filter reactor service. Now4Life Define the limits of your product or Service, and Don’t change! www.now4life.org Executive Summary • Who are your target customers? Within that segment, what does the target customer look like? The more highly you define your target customers, the more effective your marketing plan will be! “Clean Water Company target customers will be women (mothers’) with families that have dwellings, who do not have clean water available to them, or either boil or purchase clean water. Now4Life www.now4life.org Executive Summary • Why is this opportunity available to you? New technology? No competition? Lower cost? Special skills? “There is the opportunity to improve the health and welfare of many people and even save lives of people with out safe drinking water and good hygiene practices………… Now4Life www.now4life.org Executive Summary • How will you know if you are successful? Set metrics, they can be volume, financial, market share, etc. “Clean Water Company will be successful if it can reach a break even profit the first year and a gross margin of 25% the second year………… Now4Life www.now4life.org Successful Business Good Product or service Marketed correctly Produced efficiently Successful Business Now4Life Nothing happens until you receive an order! www.now4life.org Elements of a Basic Business Plan • Marketing analysis – How big is the market? – How much revenue or market share can I get and how fast? – How will I get to market? – Who is the competition? – What are the barriers to entry? – How will you promote your product/service to the customer? – Why will you succeed? – How are you going to price your product /service? Now4Life www.now4life.org Marketing analysis • How big is the market? How big is my segment? – Resources • Internet • Library • City or village government • Or make a Logical estimates Now4Life www.now4life.org Marketing analysis • How big is the market? How big is my share? – Logical estimate – Clean Water Company • The village or city I will start my business in has 200 families (from city or village records). • 25% of the families have clean water, leaving 150 who do not. • Of the families that do not have clean water 25% (50 families) either boil or purchase clean water. The can save money and time buying a filter so I think I can get 75% of them (37 families) to convert to filters with in a year. • Of the families who do not have clean water I believe I can sell 25% of them (37 families) a filter the 1st year, and in two years half of them (75 families). The logical market estimate gets us a sale of 75 filters in my immediate city or village the 1st year. Then estimate what you can get from the surrounding or more remote areas. Now4Life www.now4life.org Marketing analysis • How much revenue or market share can I get? How fast? – I can get 75 units at an average price of $20 the first year from my immediate village, or revenue of $1500. – Do I serve the entire market area? • No, but in the first year I only need to concentrate in the immediate village. • In the 2nd year I can get another 50 units from the outlying areas. Now4Life www.now4life.org Marketing analysis • How will I get to market? – Direct sales? At first I will be the direct sales person – Once established with some income I will hire village women to talk to other women about clean water and hygiene. – When I can afford it I will hire people in other remote cities or villages to sell the filters. Now4Life www.now4life.org Marketing analysis – Who is the competition? • Direct competition? There is no direct competition! Don’t forget • Indirect competition? Indirect competition would be people selling clean water, or people selling wood for boiling water. – How many competitors are there? – Is there room for another? – Do they do the same thing I will do? • Can I do things better? Key question • Can I do things less expensive? • Would I buy from me or the competition? Why? Now4Life www.now4life.org Marketing Analysis • How to promote and market product – Look at target customer first “women (mothers’) with families that have dwellings, who do not have clean water available to them, or either boil or purchase clean water”. – Then think about how I can get to them? • Hold meetings with local women to discuss clean water and hygiene? • Donate filers to schools so their children get used to clean water? Now4Life www.now4life.org Marketing Analysis • • • How to price your product, four possibilities. Match competitor? No direct competitor. Lower than competitor to get initial share? Filters would cost less than purchased water or the cost of wood to boil. Higher than competitor? If you can show more value, go ahead. Cost plus? • • Price cost plus method, which is less than Purchasing water Now4Life www.now4life.org Elements of a Basic Business Plan • Marketing Strategy statement – It should be a statement (paragraph) that tells what you want the customer to know about your business and how you are going to get that message to the customer. Clean Water company will sell and service quality filter reactors and hygiene instruction to village women through group and individual meetings. The products will be at a price more competitive than buying or boiling water. The customer will notice the health and cost differences of Clean Water company and recommend to others. Now4Life www.now4life.org Successful Business Good Product or service Marketed correctly Produced efficiently Successful Business Now4Life www.now4life.org Elements of a Basic Operations Plan • Operations plan – Location – Number and type of employees – Space needed – Capacity – Critical suppliers – Financial system – Computer system • Operations plan – – – – – – – Equipment needed Legal requirements Permits and/or licenses Insurance Patents, copyrights Credit policy Organizational structure Now4Life Discuss with your Mentor www.now4life.org Successful Business Financial tools Good Product or service Marketed correctly Produced efficiently Successful Business Now4Life www.now4life.org Elements of a Basic Business Plan • Financial exhibits – Start up costs – Income statement – Break even analysis Now4Life Use these tools to model your business www.now4life.org Start up Costs - Estimate • • • • • • • • • • Purchase of business Closing costs Fixtures and equipment Vehicles Starting inventory Office supplies Remodeling expense Installation of equipment Insurance Utilities deposit • License and/or permits • Research costs • Advanced wages and salaries • Travel expenses • Advertising for opening • Promotional expense • Accounts receivable • Operating cash for First 6 months. www.now4life.org Often overlooked Now4Life Income Statement Revenue or (Sales) Less cost of goods sold Equals Gross Profit or (gross margin) Less Expenses (fixed & variable) Net Profit/(Loss) Now4Life $888. $561. $327 (36.8%) $428 ($101) www.now4life.org Income Statement Profit and Loss Projection (3 Years) Assumptions: 1st year 50 units, 2nd year 125 units 3rd year 200 units 50% sales are on credit, ave sales margin 42.85% Breakeven revenue (2007) $ 1,164 % 2010 % $3,930 100.00% $ 3,537 100.00% 58.00% 2,246 63.50% 100 43.94% $ 1,391 39.33% Clean Water Company Example Estimate Small Company 2009 $2,456 $ 2,420 1,404 47 $ 1,063 Change the values and name here to your own 2008 % Sales $983 Revenue $ 888 100.00% Cost/ Goods Sold (COGS) 561 63.23% Service revenue Gross Profit $ 327 36.77% Operating Expenses Salary (Office & Overhead) Payroll (taxes etc.) Supplies (off and operation) Advertising Car, Delivery and Travel Rent Telephone Misc Owner draw and taxes Loan payment Total Expenses Net Profit Before Tax Income Taxes Net Profit After Tax Assumptions: 1. Works out of home 2. One or two person operation 30 20 50 $ 60 200 68 428 (101) 0 (101) 0.00% 0.00% 3.38% 2.25% 5.63% 0.00% 0.00% 6.76% 22.52% 7.66% 48.20% 60 60 102 $ 108 200 68 598 465 0 465 0.00% 0.00% 2.48% 2.48% 4.21% 0.00% 0.00% 4.46% 8.26% 2.81% 24.71% 150 150 200 $ 200 200 68 968 423 0 423 0.00% 0.00% 4.24% 4.24% 5.65% 0.00% 0.00% 5.65% 5.65% 1.92% 27.37% Now4Life www.now4life.org Income statement • Important and useful financial document. – Use in planning “what ifs” • Plug numbers for best, worst, and breakeven scenarios • Vary items to see what effect is. – Tool to tell if you are making a profit. • What if I increase advertising 20%, and sales go up 10%? • What if sales go down 20 %? • What if I spent less on rent? • What if, what if, what if………………… www.now4life.org Now4Life Break Even Analysis •For a certain margin you are able to determine what volume is needed to break even. •Another great “what if” tool Total Expenses Divided by Gross Profit Sales required to Break Even Now4Life $428 36.8% $1163 www.now4life.org Questions???? 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