Plan My Business

 Write a Business Plan 

Developing a business plan is the process of putting the key ideas of your business into a concise written document. Business plans vary depending on the nature of the business and the goods, services, or products being sold. All business plans, however, should contain some basic information about the business.

The tool below is designed to assist you in putting together a complete business plan. Each section of the plan should be detailed, thorough and well written. All of the critical aspects of your business need to be addressed in the appropriate sections.

Business Planning

Introduction

Welcome to the Business Plan Wizard which will walk you step-by-step through the process of creating your business plan.

A plan helps you find hidden business flaws and makes you think carefully about each phase of your business. By writing the plan yourself, you will gain in-depth knowledge about your business which will make it easier to answer any questions. Most importantly, the process of writing your business plan will clarify what is involved in making your business work successfully.

Instructions For Using This Wizard

This wizard is designed to give instructions, hints, and a template to aid in developing your business plan. Any action taken based on the information obtained herein is done so at the user's own risk and should not be considered, or construed as a guarantee for future funding.

The wizard is organized by business plan sections. At the bottom of each page, you can click on whether to go to the next section, return to a previous section, or return to this home page.

The instructions provided are designed to compliment a Microsoft Word template for your business plan. This template needs to be downloaded and saved on your pc. To retrieve the template, click the link below.

Download The Microsoft Word Business Plan Template (requires Microsoft Word)

Now you are ready to begin your business plan. To begin, click "Next" below.

Elements of a Business Plan

Developing a business plan is the process of putting the key ideas of your business into a clearly written document. You'll need a written business plan if you are:

  • Starting or buying a business
  • Financing or refinancing your business
  • Raising debt or equity capital

A business plan is the roadmap for your business goals. It's essential for obtaining outside funding or credit; it helps you to identify the strengths and weaknesses of your approach; helps you develop a marketing strategy and organizes your financial information; and works through creating your business goals and objectives.

Business plans vary depending upon a number of factors, including the nature of the business for which the plan is developed. All business plans, however, should contain some basic sections:

  • Cover Letter
  • Business Information Section
    • General Information
    • Products and Services
    • Industry
    • Customer Base
    • Marketing Strategy
    • Competition
    • Operations
    • Management
  • Financial Information Section
    • Personal Financial Statement
    • Balance Sheets
    • Income Statement
    • Cash Flow Statement
    • Break Even Analysis
  • Supporting Documentation
    • Organizational Structure
    • Resumes
    • Credit Information
    • Legal
    • References
    • Research and Estimates

Organizing Your Business Plan

A well organized business plan is essential to making a professional first impression. All business plans should be organized with the following:

  • Cover Letter: The cover letter that accompanies your business plan is an executive summary of your business proposal. The length should be one or two pages and should contain the following information:
    • The purpose of the loan (starting, buying, or expanding a business)
    • The owners' names and their credentials
    • Your products or services
    • Your market(s) and the competition (briefly mention your markets and customers; include key facts about your competition)
    • The amount of money needed
    • How the loan will be repaid
    • How long you want the loan to last
    • The amount you are investing and any collateral
  • Cover Page: The first page of your business plan after the cover letter is a cover page, the page should include:
    • The business name, mailing address, primary phone number and relevant contact information, and the business website address;
    • The current date; and,
    • A listing of all principal owners, including names, titles, home addresses, email addresses, and primary phone contacts.
  • Table of Contents: Because the business plan will contain several sections and pages, you need to include a Table of Contents. Once you have completed your business plan, you will need to add the page numbers and place the Table of Contents after the cover page and before the first section of the plan.
  • Clearly Divided Sections: In addition to your table of contents, each section of your business plan should have a divider page that marks the beginning of each section. If you are using the Kentucky Business One Stop template there will be three sections to your plan:
    • Business Information Section
    • Financial Information Section
    • Supporting Documentation

Make sure that you read through your entire business plan once you're finished writing and edit any errors or parts of your plan that are unclear. Once you're done, make copies for your lender and for others who are interested in your business. Make sure all the copies you submit are readable and include original signatures. Lenders keep your presentation even if you are rejected, so make copies for yourself of everything you submit.

Business Information Section

The first major section of your business plan is the business information section, which provides written details about the way your business is organized and will conduct operations. The business information section lets someone who is unfamiliar with your business understand the basic concepts that are critical to your success. The Kentucky Business One Stop template breaks the Business Information Section into several subcategories:

  • General Information - this section provides the upfront information about your business, including the type of business, legal and tax structure, owners, professional relationships, purpose, and both current and long term goals.
  • Products and Services - Here you'll be able to talk about what makes your products and services unique, and the steps you'll take to make them stand out from the competition.
  • Industry - This section is to describe what is going on in your industry including economic trends, outlook, growth patterns and forecasts. You'll address how your business will compete in your industry more fully once you get to the marketing section.
  • Customer Base - Before you begin the marketing, this section will take you through some basic questions to help you describe your customer base and target markets.
  • Marketing Strategy - This is a key section of your business plan. It explains how you will reach your customers and attract new ones. The section takes you through a series of questions that will address strategies for accessing markets, growth, distribution, communication, and sales.
  • Competition - Here you have the opportunity to describe your competition and the research you have done to effectively compete and understand your industry competitors.
  • Operations - In this section you will provide information on the day to day operations of your business. Topics that you will be prompted to consider include employees, start-up and recurring costs, equipment you own or require, facilities, materials, distribution, and any ongoing research or product development.
  • Management - Your workforce is your business' greatest asset. Here you'll be asked to provide information on any co-owners, your current or preliminary management structure, job duties, professional services you will utilize (legal, accounting etc.) and key personnel.

The Kentucky Business One Stop template will walk you through a series of questions for each section. As you answer the questions in each category they will provide the text for your business plan. Remember that the questions are used only as a prompt for each section and will not appear on the final printed version of your business plan.

Financial Information Section

The financial information section is very important to your business plan. Having the ability to read, understand, and even create the basic information in your business financials will empower you to protect and grow your business. There are five sections to the financial section of the Kentucky Business One Stop business plan.

  • Personal Financial Statement - Helps the reader to evaluate your personal ability to support your business and to ensure continued operations in the event of uncertainty.
  • Balance Sheets - Provides a snapshot in time of your business operations, and helps to illustrate your business' financial health.
  • Income Statement - Evaluates your business' financial performance over a period of time.
  • Cash Flow Statement - Describes how much money comes in and out of your business over a period of time.
  • Break Even Analysis - When a company has neither a profit nor a loss, it is the breakeven point. It is important to determine your breakeven point so you know the sales needed for your business to be profitable.

Hints for developing your business' financials

  • Keep adequate documentation. Most creditors request data for the last three to five years, depending on the length of time you have been in business.
  • Make realistic assumptions. Lenders know there are risks, so explain how they will be handled. They like to see business owners who recognize and solve them.
  • Make a record of your assumptions so you can prove to the lender that your projections are realistic.
  • In your documentation, show reasonable links between the past (if buying a business), actual, and future financial projections.

Avoid these common financial pitfalls

  • Limited capital - Another way of thinking about this is whether you have sufficient money for day-to-day activities. Don't try to make money stretch too far. Ask for more loan money, or cut down on liabilities and expenses.
  • Little or no record keeping - You must keep meticulous records for yourself, the IRS, and your lender; typically for the last three to five years.
  • Failure to seek outside help - Consult an attorney, accountant, business advisor, your local Kentucky Small Business Development Center, the Kentucky Cabinet for Economic Development, or the US Small Business Administration.
  • Inadequate financial management - You should have a basic understanding of your company's finances. Know how to read your own financial statements and reports. A business needs a good financial manager (within the company or an outside advisor, like an accountant).
  • Reluctance to invest in the business - Lenders expect you to personally invest between 25-50% of your business' start-up costs. Also, if the business fails for any reason, the owners must repay the loan. Lenders need to be assured of your total commitment.

Completing the Financial Information Section

Personal Financial Statement

You will need to complete a Personal Financial Statement for each person listed in the business plan who will be guaranteeing the loan (partners, officers, stockholders). At the end of your business plan, in the Supporting Documentation Section, you will need to add details supporting the figures you have entered here. A complete list of suggested documents can be found later in this wizard.

Balance Sheet

The Balance Sheet is like a snapshot of your business, at a particular moment. The numbers change every day. The Balance Sheet measures what you own, what you owe, and cash on hand is the last variable; when taken together this information is crucial to understanding the financial health of your business. Your Balance Sheet  will include the following:

  • Assets - What the company owns
  • Current Assets - Can be converted into cash in one year

    • Accounts Receivable - Sales made but not collected
    • Inventory - Inventory on hand, waiting to be sold
    • Total Current Assets - Sum of all of the Current Assets

    Non-Current Assets - Takes one year or more to turn into cash

    • Fixed Assets - This includes property, plant, and equipment
    • Less Depreciation - Subtract Accumulated Depreciation
    • Fixed Assets (net) - Fixed Assets minus Accumulated Depreciation
    • Advances to Owners - Money that owners take out of the business in the form of a loan to be repaid
    • Total Non-Current Assets - Add up all the Non-Current Assets

    Total Assets - Add Current Assets and Non-Current Assets

  • Liabilities - How much the company owes
  • Current Liabilities - Liabilities due within one year

    • Current Portion of Long-Term Debt - One year's worth of loan payments
    • Notes Payable - Due within one year
    • Accounts Payable (A/P) - Purchases not paid for
    • Total Current Liabilities - Sum of all the Short-Term Liabilities

    Long-Term Liabilities - Due for more than one year

    • Loan Payable - Due after more than one year's worth of payments
    • Total Long-Term Liabilities - Total all the Long-Term Liabilities

    Total Liabilities - Add the Long-Term and Current Liabilities

  • Capital or Net Worth - The business' equity
    • Owners Investment - Amount of money owners have invested
    • Retained Earnings - Income earned and kept in the business
    • Total Capital - Add Owners Investment and Retained Earnings

    Total Liabilities & Capital - Add Liabilities and Capital Equal to Total Assets

Completing the Financial Information Section

Income Statement

The Income Statement evaluates your company's financial performance. Expenses are subtracted from income, which gives you the business' net profit (or loss) over a period of time. Other names for the Income Statement are Operating Statement, Earnings Statement, or Profit and Loss Statement. Your Income Statement will include the following:

Sales

  • Net Sales - Revenue or income. Gross sales are those before returns and allowances. Net sales are those after returns and allowances.
  • Less Cost of Goods Sold - Cost to make products including materials and labor.
  • Beginning Inventory - Comes from the ending Inventory of the previous year.
  • Purchases - Used to make product.
  • Labor - Used to make product only. Other labor-related expenses are included in the operating expenses section.
  • Less: Ending Inventory - This number becomes the beginning inventory for the next year's Income Statement.
  • Total Cost of Goods Sold - Compute the cost of goods sold.
  • Gross Profit - Sales less cost of goods sold. This is your profit margin.

Expenses

  • Selling Expenses - Salaries and expenses related to sales only.
  • General and Administrative - All other expenses used to run the company.
  • Operating Income (or Loss) - Shows how the business performed.
  • Interest Expense - Subtract interest expense.
  • Net Profit before taxes (minus Income Taxes) - Tax rates depend on your business' legal status.

Profit

  • Profit - The amount left after all expenses (including taxes) have been paid.

Completing the Financial Information Section

Cash Flow Statement

The Cash Flow Statement shows the money that comes into and out of the business. Profits do not guarantee positive cash flow. You need to know or estimate income and expenses based on the direct and variable costs of your products or services. Cash must be available to pay bills on time and for day-to-day activities.

Hints for preparing Cash Flow Statements:

  • Numbers in the Cash Flow Statement will also appear in the Income Statement. However, the Cash Flow Statement differs because it records when cash is received, when cash is paid, and how much cash you have reserved.
  • Show realistic assumptions. If sales increase 80% every year, this may seem unrealistic. Prove assumptions and include them in the Supporting Documentation Section.
  • Remember that cash increases from year 1 to 2 because start-up costs are large in the first year.
  • Negative balances are common in the first year. They must be covered by providing more cash (loans or owners' investments), or by reducing expenses.
  • Increased sales can cause a cash drain (due to increased costs or labor); you will need to show how this will be overcome.
  • Show monthly figures in the first year, quarterly figures in the second year, and a lump sum or one figure in the third year.

Essential Operating Data

The five items shown at the bottom of the Cash Flow Statement can be kept separately and included at the bottom of your monthly cash flow projections. They are important planning and cash flow projection tools.

  1. Accounts receivable - Previous unpaid credit sales, plus current month's unpaid credit sales.
  2. Bad Debt - Should be deducted from the month. This figure is based on past history or industry standards.
  3. Inventory on Hand - Any products available for sale at the end of the month.
  4. Accounts payable - Any accounts due at the end of the month.
  5. Depreciation - Assets wear out and lose value. The monthly depreciation value is established by your accountant (as allowed by the IRS).

Completing the Financial Information Section

Break Even Analysis

When a company has neither a profit nor a loss, it is the breakeven point. It is important to determine your breakeven point so you know the sales needed for your business to be profitable. The numbers for this formula come from your Income Statement.

Steps for calculating your business' Break Even Point

The Kentucky Business One Stop Template will walk you through the steps in the calculations below.

  1. Determine your Net Sales
  2. Total your Variable Expenses and divide them by the Net Sales, and now calculate the percentages they represent.
  3. Subtract your Total Variable Expenses from your Net Sales  to calculate the Profit Margin
  4. Divide your fixed expenses by the Profit Margin and the answer is your Break Even Point

Supporting Documentation Section

The Supporting Documentation Section comes at the end of your business plan, and contains the details and documents that support or further explain your business plan. The Kentucky Business One Stop business plan template contains a placeholder for several key sections of your supporting documentation. The sections and the suggested content are listed below.

Operational Information

  • Organizational Chart - describing the management and operational structure of your business.
  • Human Resource Material - job descriptions, salary schedules, benefits your business provides.
  • Professional Services - list any providers of professional services which your business uses (lawyers, accountants, consultants etc.). Provide the names and contact information for each, explain the services provided, and any associated monthly costs.
  • Provide suppliers names, addresses, and products or services supplied; costs/quotes; delivery/shipping fees; turnaround times.
  • Include proposed rentals, leases or purchases of furniture, fixtures, equipment and machinery
  • Photos of your location, inside and outside. Include a floor plan, blueprint or plot plan (if constructing location).

Resumes

  • Include resumes for all owners, managers, and key personnel.

Credit Information

For the Owners:

  • Copies of signed tax returns (past three years) for each owner.
  • Stocks & Bonds: The number of shares, name of securities, cost, market value with the date.
  • Life Insurance policies: Provide the face amount and cash surrender value, name of insurance companies and beneficiaries.
  • Real Estate: List each property and include the date purchased, its original cost, and the present market value. Also include the mortgage account number, loan balance, and the monthly payment.
  • Other property: Any pledged as security/collateral. Include the name and address of lien holder, lien amount, and payment terms.
  • Copies of notes payable, real estate statements with monthly payment amounts, and unpaid tax bills.

For the Business:

  • Appraised value of the business building (if owned).
  • Inventory including make, model, year, serial number, and fair market value of furniture, fixtures, equipment and machinery.
  • Notes Payable: Include the name and address of the note holder, original loan balance, current loan balance, payment amount, and what collateral is used for security.
  • Unpaid taxes: Describe the type of unpaid tax, who taxes are owed to, the amount, when it is due, and whether there is a lien on any property.

Legal

  • Include any registrations or other legal documents filed with the state or in your municipality.
  • Provide copies of any required occupational or professional licenses.
  • Include any purchase or franchise agreement documentation (if applicable).
  • Provide a copy of the deed if you own the business location.
  • If buying the location, include a purchase-and-sale agreement and related legal documents.
  • If your location is leased, include a copy of the lease (or proposed lease) with terms, conditions, and cost.
  • Include any zoning statement from local government.
  • Add any approval letters from local and state inspectors (building, fire, health, environmental, and occupational safety).
  • Provide supplier information including terms of sales, contracts, and purchasing plans.
  • Be sure to include any documentation for any patents and trademarks.

References

  • Include the names and contacts of any loan or business references you wish to include with your business plan.

Research and Estimates

  • Provide details on any research including economic trends, growth patterns and forecasts. Provide information on traffic patterns if you own a retail business.
  • Include detailed plans and costs for research and development.

Completing a Loan Application

What is the lender looking for?

A lender will be looking at the basic information about you and your business in determining whether you qualify for financing, in general the lender will look at what are called the "C's Rules"  in making their decision:

  1. Credit (must be good)
  2. Capacity (ability to repay)
  3. Capital (money going into the business)
  4. Collateral (your assets that secure the loan)
  5. Conditions (economy, finances, anything that affects your business)
  6. Commitment (your ability and willingness to succeed)
  7. Cash Flow (can it support the business' debt and expenses?)

Questions to ask before you complete an application

Before you start the process of formally completing a business loan application you should consider the following general questions, and keep them in mind as you're writing:

  • How much money will you need?
    • As a general rule, your lender will expect you to put forward 25% - 50% of your own money in starting the business. You'll need to show how much and where your money will come from, and also provide information about money coming from investors.
  • How will the money be used?
    • Equipment, repairs or improvements, inventory, or day-to-day activities are common uses, the key to remember is that your business' income (and other money) must cover expenses.
  • How long are you asking for repayment?
    • Short Term (less than a year): Short-term loans are called Lines of Credit (LOC) and work like a credit card, with a pre-determined amount. Lines of credit are primarily used for working capital and must be paid in full within that year.
    • Intermediate Term (1-10 years): Like a car loan, payments are monthly. Used for buying the business, equipment, or for long-term working capital.
    • Long Term (10 years or more): Like a mortgage, used to buy commercial real estate, commercial vehicles, and heavy equipment.
  • How will the loan be repaid?
    • The lender wants to see the loan repaid from the business' income. If necessary, the lender needs to know that the loan could also be repaid by selling an asset or by a cash infusion from an investor.
  • What collateral are you offering?
    • Collateral are assets the bank has a lien (or a legal right to possess, as a financial guarantee) on and will take if you can't repay the loan. Collateral can be personal (savings, stocks and/or equity in personally owned real estate) or business (receivables, inventory, and equipment). Lenders require appraisals of your collateral and they discount the value of your assets. Discounting takes into consideration the wear and tear of items as they are used or age. The total discounted collateral amount must equal the total loan amount requested. Typical discounts include: saleable inventory at 50% or lower, fixed assets at 50% or lower, collectable accounts receivable at 25% or lower, and furniture/fixtures/machinery/equipment at fair market value of book value.