Start Your Own Business (24 page)

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Authors: Inc The Staff of Entrepreneur Media

BOOK: Start Your Own Business
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SAMPLE EXECUTIVE SUMMARY
 
T
he business will provide ecology-minded consumers with an environmentally safe disposable diaper that will feature all the elements that are popular among users of disposable diapers but will include the added benefit of biodegradability. The product, which is patent pending, will target current users of disposable diapers who are deeply concerned about the environment as well as those consumers using cloth diapers and diaper services. The product will be distributed to wholesalers who will, in turn, sell to major supermarkets, specialty stores, department stores and major toy stores.
 
 
The company was incorporated in 1989 in the state of California under the name of Softie Baby Care. The company’s CEO, president and vice president have more than 30 years of combined experience in the diaper industry.
 
With projected net sales of $871 million in its third year, the business will generate pretax net profits of 8 percent. Given this return, investment in the company is very attractive. Softie Baby Care Inc. will require a total amount of $26 million over three stages to start the business.
1. The first stage will require $8 million for product and market development.
2. The second stage of financing will demand $12 million for implementation.
3. The third stage will require $6 million for working capital until break-even is reached.
First-stage capital will be used to purchase needed equipment and materials to develop the product and market it initially. To obtain its capital requirements, the company is willing to relinquish 25 percent equity to first-stage investors.
 
The company has applied for a patent on the primary technology that the business is built around, which allows the plastic within a disposable diaper to break down upon extended exposure to sunlight. Lease agreements are also in place for a 20,000-square-foot facility in a light industrial area of Los Angeles, as well as for major equipment needed to begin production. Currently, the company has funding of $3 million from the three principals, with purchase orders for 500,000 units already in hand.
If you’re using your business plan for financing purposes, explain why the money you seek will make your business more profitable. Will you use the money to expand, to create a new product or to buy new equipment?
 
e-FYI
 
Looking for inspiration? Visit Uncle Sam: The SBA (sbaonline .
sba.gov/starting_business/planning/basic.html
) offers clear, concise business plan outlines and tutorials. When you’re done, if you feel like your business plan has the right stuff, consider submitting it to a business plan competition. Universities, such as Wharton and Harvard Business School, and corporations often sponsor such competitions, offering grants and other cash prizes that can really help offset your startup costs. To find a competition, Google “business plan competition” and see what turns up.
Market Strategies
 
Here’s where you define your market—its size, structure, growth prospects, trends and sales potential. Based on research, interviews and sales analysis, the marketplace section should focus on your customers and your competition. How much of the market will your product or service be able to capture?
The answer is tricky since so many variables influence it. Think of it as a combination of words and numbers. Write down the who, what, when, where and why of your customers. (You know all this because you researched it in Chapter 7.) The answer is critical to determining how you will develop pricing strategies and distribution channels.
Be sure to document how and from what sources you compiled your market information. Describe how your business fits into the overall market picture. Emphasize your unique selling proposition (USP)—in other words, what makes you different? Explain why your approach is ideal for your market.
Once you’ve clearly defined your market and established your sales goals, present the strategies you’ll use to meet those goals.
•
Price.
Thoroughly explain your pricing strategy and how it will affect the success of your product or service. Describe your projected costs and then determine pricing based on the profit percentage you expect. Costs include materials, distribution, advertising and overhead. Many experts recommend adding 25 to 50 percent to each cost estimate, especially overhead, to ensure you don’t underestimate.
•
Distribution.
This includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose depends on your industry and the size of the market. How much will it cost to reach your target market? Does that market consist of upscale customers who will pay extra for a premium product or service, or budget-conscious consumers looking for a good deal? Study your competitors to see what channels they use. Will you use the same channels or a different method that may give you a strategic advantage?
•
Sales.
Explain how your sales force (if you have one) will meet its goals, including elements such as pricing flexibility, sales presentations, lead generation and compensation policies.
Competitive Analysis
 
How does your business relate to the competition? The competitive analysis section answers this question. Using what you’ve learned from your market research, detail the strengths and weaknesses of your competitors, the strategies that give you a distinct advantage, any barriers you can develop to prevent new competition from entering the market and any weaknesses in your competitors’ service or product development cycle that you can take advantage of.
The competitive analysis is an important part of your business plan. Often, startup entrepreneurs mistakenly believe their product or service is the first of its kind and fail to recognize that competition exists. In reality, every business has competition, whether direct or indirect. Your plan must show that you recognize this and have a strategy for dealing with the competition.
 
TIP
 
Your local Small Business Development Center can help you develop a business plan. To find an SBDC office near you, go to
sba.gov/sbdc
, then click on “SBDC Locator.”
Design and Development Plan
 
This section describes a product’s design and charts its development within the context of production, marketing and the company itself. If you have an idea but have not yet developed the product or service, if you plan to improve an existing product or service, or if you own an existing company and plan to introduce a new product or service, this section is extremely important. (If your product is already completely designed and developed, you don’t need to complete this section. If you are offering a service, you will need to concentrate only on the development half of the section.)
The design section should thoroughly describe the product’s design and the materials used; include any diagrams if applicable. The development plan generally covers these three areas: 1) product development, 2) market development and 3) organizational development. If you’re offering a service, cover only the last two.
Create a schedule that shows how the product, marketing strategies and organization will develop over time. The schedule should be tied to a development budget so expenses can be tracked throughout the design and development process.
Operations and Management Plan
 
Here, you describe how your business will function on a daily basis. This section explains logistics such as the responsibilities of each member of the management team, the tasks assigned to each division of the company (if applicable), and the capital and expense requirements for operating the business.
 
TIP
 
There are many books, manuals and software programs that can help you write a business plan. Visit a bookstore, or, for free information, look in your local library’s business section.
Describe the business’s managers and their qualifications, and specify what type of support staff will be needed for the business to run efficiently. Any potential benefits or pitfalls to the community should also be presented, such as new job creation, economic growth, and possible effects on the environment from manufacturing and how they will be handled to conform with local, state and federal regulations.
Financial Factors
 
The financial statements are the backbone of your business plan. They show how profitable your business will be in the short and long term, and should include the following:
• The
income statement
details the business’s cash-generating ability. It projects such items as revenue, expenses, capital (in the form of depreciation) and cost of goods. You should generate a monthly income statement for the business’s first year, quarterly statements for the second year and annual statements for each year thereafter (usually for three, five or 10 years, with five being the most common).
• The
cash-flow statement
details the amount of money coming into and going out of the business—monthly for the first year and quarterly for each year thereafter. The result is a profit or loss at the end of the period represented by each column. Both profits and losses carry over to the last column to show a cumulative amount. If your cash-flow statement shows you consistently operating at a loss, you will probably need additional cash to meet expenses. Most businesses have some seasonal variations in their budgets, so re-examine your cash-flow calculations if they look identical every month.
• The
balance sheet
paints a picture of the business’s financial strength in terms of assets, liabilities and equity over a set period. You should generate a balance sheet for each year profiled in the development of your business.

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