THE BUSINESS BLUEPRINT GUIDE

An Outline for Preparing Business Plans

Why Write a Business Plan?

Properly planning your business is the best way to insure business success. Starting and managing a poorly planned business is like building a house without a blue print, or taking a long trip in unfamiliar territory without a map: Your chances of achieving long term effectiveness are limited. If you need outside financing for your business, writing a plan will be required to prove to lenders that your business idea will produce an acceptable return on investment, and that you and the other members of your management team are capable of managing the business. Not only can a good business plan help you get the money you need for outside financing, but it should also be used as an important management tool as your business grows. The process of writing a formal business plan not only results in the production of a document that will be useful to outsiders, but will also provide you with a clearer understanding of what it will take to make your business work.

Before You Start Writing the Plan...

Before you write your business plan, you should answer some important questions:

Why are You in Business?

If you're like most business people, you're in business to make money and be your own boss. But few business people would be able to say that those are the only reasons. The money that you will make from your business will seldom seem like enough for all the long hours, hard work, and responsibility that go along with being the boss.

The purpose of this section is not to downplay the importance of making a profit. Profits are important. They will keep your business going and attract additional capital. But you should be aware that there are other rewards and responsibilities associated with ownership. Your business philosophy addresses these issues, and guides the business in how to handle its responsibilities to employees, community, stockholders, customers, product, and profit. This philosophy should be evident in your marketing and production, and it will influence the way you do business. It will contribute to your success or failure.

What Kind of Business is Right for You?

In starting a business, you are your own most important asset. Therefore, you can increase your chances of success by understanding yourself in terms of your business goals, skills, interests and experiences. What are your reasons for starting a business? What are your personal skills, interests, and areas of experience? What can you do better than most other people? What are your personal goals? What kind of business opportunities will provide the optimal integration of all these factors?

What Business are You In?

At first reading, this question may seem silly. However, many businesses have failed because their owners never develop a clear vision of their strategies and unique competitive advantages. Asking questions like: "Who is my customer? What does my product do for my customer? Why? When? How? What doesn't it do? What should it do later but doesn't do now?" can lead to the ultimate conclusion of what business you're in and possibly direct you to new product lines or industries. It can also help you to use your limited resources wisely.

Writing the Plan....

Once you have chosen the type of business you are interested in, you are ready to begin writing a business plan. Having a business plan is critical if you are starting a new business. If you are buying a franchise or an existing business, going through the business planning process will help you to evaluate the viability of your firm.

The following topics should be covered in your business plan:

1. Executive Summary
Most lenders and investors review a short summary of a business plan so they can quickly decide if it’s worth their time to review the entire plan. The executive summary is the last part of the plan to be written. Care should be taken so that the summary entices the reader to study the plan further. It should be no longer than two pages and should include the following:

-A brief description of your product and market

- A brief description of the management team

- A summary of your financial projections

- The amount of money you seek, the form in which you hope to secure it, and
   the purposes for which it will be used.

2. Company History, Goals and Objectives

List the date and state of incorporation, the principals of the firm and what role has been played by each in bringing the firm to its current stage, and a summary of major developments, such as the introduction of a new product. This section should also be a concise summary of the goals of the company and its specific objectives and when they will be accomplished.

3. The Industry

Present your view of the current status and outlook for your industry. Describe the principal participants and how they are performing, including their growth in sales, profits, and current market share. Describe the effect of major economic, social, technological or regulatory trends.

4. Products and/or Services

This should be a complete yet concise description of your product and its applications, along with any proprietary features and future development plans. Specific areas to consider:

- Description of the product line. If the company anticipates developing more than one             product, how will the promotion and manufacture of one affect the other? Include material         such as engineering studies, photographs and selling brochures.

- Research and development. Describe the nature and extent of research work that must be completed before your product is placed on the market. The costs and time required to achieve a marketable product should be indicated. Discuss plans both for extension of your present product and development of new or related products.

- Proprietary features. Describe patents, trademarks, copyrights, and other legal and technical considerations. Outline the requirements of appropriate regulatory agencies.

- Show a break-even analysis for each product.

5. Market Analysis

The first step in analyzing your market is to define it. Develop a profile of your prospective customer. For example, a company which markets consumer goods may define its typical customer using some combination of the following characteristics.

Income Level        Buying habits              Age
Gender                 Education                    Location
Race                    Religion                       Hobbies
Skills                    Health                         Number of children
Special interests    Physical handicaps      Home ownership
Eating Habits        Hobbies                     Vacation preference
Car preference      Pets                           Jobs and position

Determine sales projections by determining how many potential customers fit your profile. Much of the information you will need can be found in secondary resources in your business library. Other information can be obtained from discussions with potential distributors, sales representatives and customers. Pay attention to seasonal fluctuations in sales for your industry; also, it is important to discuss any negative reactions to your product along with plans for overcoming the negative reactions.

You will also need to demonstrate an awareness of market trends. Describe the market's growth potential. Market projections should be made for at least three years and should make clear the assumptions made in predicting sales. Discuss major factors such as industry trends, new technical developments, and new or changing customer needs. Be sure to consider the level and trend of consumer spending as well as prior sales and performance patterns of your business.

Another important part of your market analysis will be a discussion of your competitors. You should compare your product with those of your competitors on the basis of price, performance, service, warranties, and other important features. Then review the strengths and weaknesses of each competitor. If there are no direct competitors, discuss the sources of potential competition and indirect competition. Providing detailed information about competitors (including name, location, sales levels and market share) will show greater knowledge of your industry.

6. Unique Competitive Advantages

This section should explain what need will be met by your business that is not currently served by your competitors. Your advantages may include such elements such as:

- Management experience of skills
- Product superiority or price advantage
- Market advantages, such as a large contract with a major customer or supplier
- Proximity to a large market, large labor supply, raw materials, energy,
   transportation, or inexpensive land or equipment
- Better quality
- Better service
- Convenience

7. Marketing Strategy

This section discusses your plan for attracting customers. You should provide projections of sales and market share, and convince the lender that your marketing plan will achieve those projections. Estimate your sales and market share in terms of both units and dollars. Identify any major customers who have made or are willing to make purchase commitments. The following items should also be considered:

- Timetables for market penetration
- Targeted customers (both initial and later)
- Product features that will be emphasized
- Pricing - explain and justify your pricing system
- Relationships with suppliers and any distribution or licensing agreements
- Product distribution policies
- Service arrangements, product support and customer training and warranty terms
- Promotion and advertising plans

8. Operations

This section explains the details of how work moves through your business. A more detailed description will be required for manufacturing businesses; a brief overview will suffice for service or retail firms. You should include the location, plant and equipment needed and where it will be obtained, the manufacturing process, and the amount and type of labor you will need. Describe the following:

- Materials and components required for products
- Sources of supply and alternatives if materials become unavailable
- Production methods
- Condition of production facilities and equipment
- Environmental factors restricting use of chemicals, disposal of wastes, pollution and noise control
- Labor requirements and effects of strikes, collective bargaining and turnover
- Availability and cost of transportation, energy and other utilities
- Quality assurance and inventory control procedures
- Plant capacity and long-term alternatives
- Proximity to customers
- Cost of and timetable for acquiring plant and equipment
- Breakdown of fixed manufacturing costs
- Training needs and training costs

9. Management Plan

This is one of the most important sections of your business plan for investors or lenders. Banks loan money to individuals rather than to firms. Business owners should emphasize elements of their training and experience which will reassure lenders of their managerial competence. Because most people do not possess the full range of skills needed to manage a growing business, attention should be given to developing a well balanced management team. Moreover, provision should be made for the continuation of the business in case of the owner's death or disability. Provide the following information:

- Describe and defend legal structure of the company
- Show an organization chart
- Explain key management roles
- Identify the person to fill each position
- Emphasize the way in which the management team's strengths compliment each other
- Provide a resume or career highlights of each individual
- Discuss the weaknesses in the management team
- Explain each individual's ownership interest and compensation in the firm
- Describe the investment involvement of the principals
- Draw a floor plan of the plant or explain space requirements
- Provide an operating plan and schedule of upcoming work for one to two years
- Describe internal control, accounting, inventory and management reporting systems

10. Financial Information

The amount of financial information needed in your business plan will depend largely on the stage of your financing and the amount of money you are seeking. Your plan should describe, in general terms, the type and amount of funding you are requesting. In addition, you will need current information on the company's present financial status and financial projections. If your company has already begun operations, you must include current financial statements.

A. Funding request

1. Tell how much money you need and what you will do with it.

2. Explain the capital structure of the company and what effect funding will have on that structure.  Tell who the stock holders are, what their positions in the company are, how much stock they own, and how much they paid for the stock.

3. Tell how the funds will be used, being certain that this explanation is consistent with your financial projections.

4. Explain anticipated future funding.

5. Describe the potential return on investment compared to competitors and the industry in general.

B. Current financial statements.

If your firm has a track record, provide financial statements for the last three years or from inception. Also provide:

- Detailed breakdown of income statement categories
- Operating statistics and explanations of unusual fluctuations
- Analysis of capitalization decisions, such as whether to lease or buy equipment
- Key business ratios with comparison to industry averages

- Analysis of cost alternatives, such as sub-contracting for production of components rather that producing them in-house or contracting with outsiders for financial or other services

C. Financial projections.

You should provide three-year cash flow, income statement, and balance sheet projections. If your company has a track record, the projections should be on a quarterly basis the first year, a quarterly basis the second year, and annually thereafter. When making financial projections, it is important to explain your assumptions. The assumptions you should include are:

- Sales increases by unit or total dollar volume and product mix
- Gross margin in total and by product line
- Accounts receivable collection period
- Inventory turnover
- Useful lives of the company's assets and related depreciation schedules
- Capital expenditures
- Investment rate on debt and interest income on temporary investments of excess funds
- Effective income tax rates

        Financial Projections Should Be Based On Sales Forecasts

This will help you to define the amount of cash you will have coming in from operations and when it will come in. This, in turn, will help you to determine how much money you will need until the company begins to generate a positive cash flow.

Included as part of the business plan are three years of projected financial statements for the business. Existing businesses should also include the past three years of financial statements.

Appendix

Include supporting documentation, pertinent personal information, graphics, photos, etc.

Sources of Financing

Friends or relatives                                    Farmers Home Administration
Commercial banks                                    Credit unions
Savings and loan associations                    Equipment leasing companies
Small business investment companies         Small Business Administration
Business brokers and investors                  Community development companies
Insurance companies Suppliers

Community Resources

Utah Small Business Development Cntr.
800 West University Parkway
Utah Valley State College
Orem, Utah 84058
863-8230
www.uvsc.edu/sbdc Provo/Orem Chamber of Commerce
51 South University Avenue, Suite 215
Provo, Utah 84601
379-2555
www.thechamber.org

Mountainland Association of Governments
2545 N. Canyon Road
Provo, Utah 84604
377-2262
www.mountainland.org Commission for Economic Development
of Orem
777 South State
Orem, Utah 84058
226-1538

Utah Valley Economic Dev. Assoc.
100 E. Center Suite 3200
Provo, Utah 84606
370-8100
www.utahvalley.org/UVEDA Provo Economic Development
40 South 100 W. Suite 100
Provo, Utah 84603
379-6160


Deseret Certified Development Company
228 North Orem Blvd.
Orem, Utah 84058
221-7772 Utah Manufacturing Extension Partnership
Utah Valley State College
Orem, Utah 84058
222-8637
www.mep.org

Department of Workforce Services
1550 N. Freedom Blvd.
Provo, 84603
374-7808 SCORE , Utah Valley Chapter
Ron Coleman
798-0273