Location of Business

1. Plan to keep an eye on any demographic shifts in your area.

THE BUSINESS PLAN
2. What are your location needs?
The following checklist is an outline you can use to make sure that
important points are covered in your summary. These Guidelines are 3. What kind of building do you need?
a suggestion. Your business may need to stress different points. If so,
make sure that they are included. 4. Why is this a desirable area? a desirable building?
Description of Business Management
1.Business form: proprietorship, partnership, or corporation? 1. How does your background/business experience help you in this
business? Also, for your own benefit, what weaknesses do you have
2. Merchandising, manufacturing or service? and how will you compensate for them, i.e.: what related work
experience have you had?
3. What is the product?
2. Who is on the management team?
4. Is it a new business? A take-over? An expansion?
3. What are the duties of each individual on the management team?
5. Why will your business be profitable?
4. Are these duties clearly defined? How?
6. When is your business open?
5. What additional resources have you arranged to have available to
7. Is it a seasonal business? help you and your business?
8. What have you learned about your kind of business from outside Personnel
sources (trade suppliers, banks, other business people,
publications)? 1. Plan for training personnel for both operations and management.

2. Wages: Salary or hourly? Overtime? Fringe benefits? Taxes?

The Market
3. What are your personnel needs now?
1. Who is your market? DEFINE YOUR MARKET!
4. What will your needs be in five years?
2. How are you going to satisfy your market’s wants?
Application and Expected Effect of Loan
3. How will you attract and hold your share of the market?
1. How will the loan (or other injection of new funds) make your
4. How are you going to price your product? business more profitable?

2. Should you buy or lease?

Competition
3. Do you need this money? Establish a procedure for making
1. Plan to keep an eye on the competition. borrowing decisions. Plan your borrowing.
2. Who are your nearest competitors? 4. How is the loan to be applied?
3. How is their business?

4. What have you learned from their operation?

 Part 1. The Business A. Description of Business
This is the most important and most difficult part of your business
The objective of this section is to explain
plan. The objective of this section is to make a clear statement of:

1. What the business is (or will be); x What your business is;

2. What market you intend to service, the size of the market and your x how you are going to run it; and
expected share;
x why you think your business will be successful
3. Why you can service that market better than your competition;
Deciding what your business is – and what it will be in five years – is
4. Why you have chosen your particular location; the most important decision you will have to make. A small business
may be involved in more than one activity: If so, the judgment of what
5. What management and other personnel are available and required the central activity is (or what the central activities are) is crucial. Your
for the operation; and entire planning effort is based on your perception of what business
you are in. If you make a serious error at this point, your chances of
6. Why (if appropriate) debt money or someone’s equity investment success will be sharply diminished. So be sure to take the time to
will make your business more profitable. think this decision through.

These six considerations are crucial. They are the written POLICY of The Description of Business includes:
your business, rules you should not deviate from without compelling
reasons. POLICY gives direction and stability to your business. As 1. The type of business: Is your business primarily
such, it requires a great deal of thought and planning. If you can’t merchandising, manufacturing, or service?
describe your idea clearly and simply, you haven’t thought it through.
2. The status of business: Is your business a start-up? an
Remember that technical support for your business idea will be found expansion of a going concern? a take-over of an existing
primarily in the FINANCIAL DATA section and the SUPPORTING business?
DOCUMENTS. In the section (THE BUSINESS), reference the
supporting data as needed. Too much detail would get in the way of 3. The business form: sole proprietorship, partnership or
explaining your idea. corporation? (Your attorney’s and accountant’s advice is
essential on this item.)

4. Why is your business going to be profitable?

5. When will (did) your business open?

6. What hours of the day and days of the week will you be (are
you) in operation?

7. If yours is a seasonable business, or if the hours will be

adjusted seasonally, make sure that the seasonality is reflected in
your replies to 5 & 6.

You will not have a complete answer to Item 4 yet since it is partially
answered in FINANCIAL PROJECTIONS. Keep it in mind until you do.
The answer should come out as your business plan progresses. Items
5, 6 & 7 are particularly important for merchandising and service
businesses. These are critical marketing concerns, which will be
further considered in the next section.

Since start-ups and take-overs face different kinds of problems, they

are treated separately on the following pages. The checklists provided
are in addition to Items 1 through 7.
 For a Take-Over
For a New Business
Your Description of Business should contain a brief history of the
Your description of the business should contain responses to the
business you plan to take over and include some response to the
following (as well as the seven items previously listed):
following questions:
1. Why will you be successful in this business?
1. When and by whom was the business founded?
2. What is your experience in this business?
2. Why is the owner selling it?
3. Have you spoken with other people in this kind of business? What
3. How did you arrive at a purchase price for the business?
was their response?
Businesses which are strong and growing are rarely offered for sale
4. What will be special about your business?
and most sellers will give – not necessarily deliberately – misleading
reasons for selling their business. Protect yourself. Ask your banker to
Many businesses fail to take advantage of the insights and experience
check out the business. This is a normal activity for him, and he has
of possible competitors. They are your best single source of
the means available to find out information you may not be able to get.
information and will often give you much valuable advice for nothing
If your lawyer or accountant is experienced, ask him. Pricing a
more than a chance to show their expertise. Talking with them (and
business requires professional expertise and ethics. Paying for a
observing their business practices) will also help you define what the
professional appraisal may turn out to be an excellent investment as it
special advantages of your own business will be.
not only establishes a fair price for the business but also provides
justification for the price if outside financing is needed. Include a copy
5. Have you spoken with prospective trade suppliers to find out what
of the appraisal as supporting document. The price should reflect the
managerial and/or technical help they will provide?
assets of the business, the rate of expected income on your
investment, and perhaps a goodwill factor (sometimes a business has
6. Have you asked about trade credit?
patents which can be capitalized, an excellent reputation for service or
an advantageous lease.)
Trade credit is a source of funds. Terms such as "net due in 30 days"
allow you to use the supplier’s money for the 30 days – it’s like non-
Since you will be repaying the purchase price out of profit, make sure
interest bearing loan for that period. However, this means that you
that you are getting what you are paying for.
forego the cash discount frequently available if paid within 10 days.
Taking the discount can represent a substantial savings on the cost of
4. What is the trend of sales?
his product: If the terms are 2/10, N/30, by paying within 10 days, you
save 2% of net. The cash discount represents an annual interest rate
5. If the business is going downhill, why? How can you turn it around?
of 36%. If you can borrow funds somewhere else for less interest, you
should take advantage of the savings. Such credit is often not
6. How will your management make the business more profitable?
available until a business has been in operation for a length of time
sufficient to establish a reputation for paying on time. Many suppliers
Items 4 and 5 should be supported by income statements and tax
also offer free services as an inducement to buy their product. For
return. REMEMBER, if a business is sliding downhill, there may be
instance, store fixture manufacturers give free layout advice; utility
reasons which aren’t immediately obvious. Check out the owner’s
companies give hints on how effective use of light can create more
reasons. Ask his bankers. It is difficult to restore a tarnished
sales.
reputation, and it cannot be done overnight.
7. If you will be doing any contract work, what are the terms?
Some additional thoughts to keep in mind as you check out the
Reference any firm contract or letter of intent, and include it as a
business. Have you evaluated and aged the inventory? checked with
supporting document.
trade creditors? aged the receivables? What is the condition and age
of operating machinery? Does the business owe money – and if it
This is especially important for anyone contemplating contract work:
does, will you inherit the liabilities?
FIND OUT HOW AND WHEN YOU WILL BE PAID. Get a feel from
other contractors about their experiences. A slow paying customer can
put you out of business if you aren’t prepared. If slow payment is a
fact of life for your business, plan for it. Determine Exactly What You Are Buying
You are planning to put your money on the line. Don’t be afraid to ask
8. How will you offset the slow payment by the customer? for advice before you commit yourself to any deal. A good attorney is
essential at this point to help determine what you are buying and to
make sure that the terms of the sale are in your favor.
 B. The Market Your target market, the market you have selected to serve, must be
measured. Having too few customers puts you out of business.
In order to generate a consistent and increasing sales flow, you must
Although your business will receive cash from four sources – 1) sales,
become knowledgeable about your market – the people who will be
2) loan proceeds, 3) sale of fixed assets, and 4) proceeds of new
buying your service, product, or merchandise.
investment – it will ultimately rely on SALES as the main source of
money. If there are no sales, there is no business.
The basic marketing considerations are:
You can obtain information about the size of your market from your
1. Who is your market?
Chamber of Commerce, trade publications, marketing consultants,
other businesspersons, schools, and colleges. An excellent source of
2. What is the present size of the market?
information is the Federal Census Report which includes your area;
you will find one in the nearest library. It is best to get help in
3. What percent of the market will you have?
assessing the market from such sources rather than trying to guess by
watching passing traffic and hoping for the best. Good marketing
4. What is the market’s growth potential?
strategy must be planned, and it must be based on good information.
5. As the market grows, does your share increase or decrease?
When you have a feeling for your market, the following questions can
be raised:
6. How are you going to satisfy your market?
8. How will you attract and keep this market?
7. How are you going to price your service, product, or merchandise to
make a fair profit and, at the same time, be competitive?
9. How can you expand your market?
Many businessmen, the more successful ones, consider marketing
10. What price do you anticipate getting for your product?
skills to be of prime importance. Once you clearly identify the market
you wish to service, you can then focus on Items 2 through 7 in a
11. Is the price competitive?
coherent way. Your first problem then is to:
12. Why will someone pay your price?
Define Your Market
13. How did you arrive at the price? Is it profitable?
In marketing terminology, define your target market. This term is
especially useful because that market is the target for all of your 14. What special advantages do you offer that may justify a higher
efforts. Defining the target market is done in a logical fashion by price (you don’t necessarily have to engage in direct price
considering: competition?)

x Who needs your service? A Brief Note on Credit

x Who needs your product? Will you offer credit to your customers? If you give credit to your
customers, you are, in effect, making a loan to them. Can you afford to
x Who buys the kind of merchandise you stock? do this? Do you have to extend credit? Can you evaluate credit risk?
Can you collect? Can you afford to write off bad debts? Customer
It may be necessary to change your service, product, or merchandise credit can represent an unexpected cash drain on the business. If you
mix to meet the needs of the market you have targeted (Item 6) or must offer credit, make sure that you plan how to absorb its effects –
make rational price adjustments (Item 7). offering credit to your customers costs you money - especially if you
then have to borrow funds to cover these accounts. It may strangle
However, you first must know exactly who your market is. Perhaps it is your business by tying up funds you could possibly use for other
defined by geographic location, socioeconomic or ethnic factors, age, purposes.
or sex, or any of a thousand other conditions. Whatever they are,
make sure you identify them. One way to do this is to simply list all of
the important characteristics and then, by using census data or other
information, find out to what extent these characteristics are present in
different areas.
 C. Competition D. Location of Business
If you have decided on your target market and it is large enough to be
Proper site location can help your business make money. If you are
profitable and contains reasonable expansion possibilities, the next
going into business, first try to locate the ideal site, then figure how
step is to check out your competition, both direct (similar operations)
close you can come to it, remembering that:
and indirect. Consider these questions:
RENT IS THE COMBINATION OF SPACE AND ADVERTISING
1. Who are your five nearest competitors?
Information about specific areas is available from Chambers of
2. How will your operation be better than theirs?
Commerce, industrial development commissions (they may also have
information about tax breaks and financing incentives for businesses
3. How is their business: steady? increasing? decreasing? Why?
which will employ substantial numbers of people in towns under their
commission), trade sources such as magazines and associations,
4. How are their operations similar and dissimilar to yours?
planning commissions, bankers, and lawyers.
5. What are their strength and/or weaknesses?
Do not go into business in a given spot simply because the price is
low. Rent and purchase prices are usually fixed by market forces, and
6. What have you learned from watching their operations?
a low price can reflect low desirability. Although for some operations,
exposure to people and accessibility for those people are most
The objective of this section is to enable you to make your business
important. Sources of this information may be the state or local
more profitable by picking up the good competitive practices and
highway agencies, the local library, Chambers of Commerce, and
avoiding the errors of your competitors. A common error is opening a
large stores.
business in a market that is already more than adequately serviced.
Carefully viewing the competition will sometimes lead you to alter your
In this section of your business plan, you should answer the following:
basic business strategy of change existing operations to compete
more effectively. This should be an ongoing practice since markets
1. What is you business address?
shift and success attracts competition.
2. What are the physical features of your building?

3. Is your building leased or owned? State the terms.

4. If renovations are needed, what are they? What is the expected

cost? Get quotes in WRITING from more than one contractor. Include
quotes as supporting documents.

5. What is the neighborhood like? Does the zoning permit your kind of
business?

6. What kind of businesses are in the area?

7. Have you considered other areas? Why is this one the desirable
site for your business?

8. Why is this the right building and location for your business?

9. How does this location affect your operating costs?

The key to correct site selection is to keep in mind that a bad site can
put you out of business, while a good site can increase your profits.
Once you get started or if you are already located, keep a constant
eye on changes in your location – new roads get built, populations
shift from one class to another, people move, zoning ordinances
change, and your business needs may change.
 E. Management 1. Personal History of Principals

This segment should include responses to the following questions:

According to various studies of factors involved in the failures of small
business, roughly 98% of businesses fail because of managerial
1. What is your business background?
weakness; less than 2% of the failures are due to factors beyond
control of the persons involved.
2. What management experience have you had?
Your business plan must take this into account. If you are preparing a
3. What education have you had (including both formal and informal
financing proposal, you should make sure that your prospective
learning experiences) which have bearing on your managerial
financing source is aware of what steps you have taken or are taking
abilities?
to correct any weaknesses in your managerial staff (yourself and any
other managerial persons involved); if you are to use your business
4. Personal data: age; where you live and have lived; special abilities
plan to its fullest extent, you should use this segment to highlight both
and interests; reasons for going into business.
strengths and weaknesses of management for your own sake.
The personal data needn’t be a confession, but it should reflect where
The failure factor breakdown provides a guide:
your motivation comes from. Without a lot of motivation, your chances
of success are slight. It pays to be ruthlessly honest with yourself –
45% - Managerial incompetence
even if you don’t put the results on paper.
9% - Inexperience in the line
18% - Inexperience in management
5. Are you physically up to the job? Stamina counts.
20% - Unbalanced expertise
3% - Neglect of business
6. Why are you going to be successful at this venture?
2% - Fraud
1% - Disaster
Keep in mind that your family will be affected by your decision to go
98% - TOTAL
into business for yourself and try to assess the potential fallout; while
they may be supportive now, will they continue to be?
There is no known cure for incompetence – but there are very direct
cures for inexperience or unbalanced experience: (1) get the
7. A personal financial statement must be included as a supporting
necessary experience yourself, or (2) find a partner or employee who
document in your business plan if it is a proposal for financing.
has the requisite experience. The final three items represent
managerial failures because neglect of business, being victimized by
Bankers and other lending sources want to see as much collateral as
fraud, or being put out of business by a disaster can almost always be
possible to secure their loan. Be forewarned: Under most
prevented by foresight (insurance, for example).
circumstances, the personal creditworthiness of the principals will be a
major concern of the banker. Also, you will undoubtedly be expected
In preparing the MANAGEMENT section, there are five areas to be
to sign personally for the loan. This means that your personal assets
covered:
may be taken if the business fails – even if the business is a
corporation.
1. Personal History of Principals
2. Related Work Experience
2. Related Work Experience
This segment is a detailed response to the experience factors
3. Duties and Responsibilities
mentioned earlier. It includes (but is not limited to) responses to the
following:
4. Salaries
1. Direct operation experience in this type of business;
5. Resources Available to the Business
2. Managerial experience in this type of business;
Properly treated, these five areas will help make a proposal more
convincing and a business plan far more useful than could otherwise
3. Managerial experience acquired elsewhere – whether in totally
be the case. The aim is to spot areas of potential weakness before
different kinds of businesses, or as an offshoot of club or team
problems caused by them arise and put you out of business.
membership, civic activities, church work, or some other.

While some managerial skills are transferable, others are not.

 Unbalanced managerial experience can cause serious problems. For
example, the talents require of a financial specialist are quite different 4. Salaries
from those of a used-car salesman. Combination of both sets of
talents in one individual is rare. A simple statement of what the management will be paid is sufficient.
Just remember, cut the fat from your personal budget, add 15% for
3. Duties and Responsibilities contingencies, and then stick to it. Many deals never get going
because bankers feel the principals are getting paid more than they
Once you have written down the experience and skills (and have a should; other deals self-destruct when the rockbottom figure,
feel for the weaknesses) of the proposed management, this segment unrealistic to begin with, is altered without planning, thus throwing the
becomes much simpler. Follow the rule: business budget out of kilter. Be realistic, but don’t be greedy. The
payoff comes in the future – after the business becomes successful.
ALWAYS BUILD ON STRENGTHS AND SEEK TO ALLEVIATE
WEAKNESSES Knowing what you need, as distinguished from thinking you know
what you need, takes effort – but one sure way to damage a small
This is a variant on "you can’t make a silk purse of a sow’s ear" – business is to bleed it for family necessities. If your business can’t
attempting to make a salesman out of a retiring clerk is folly. afford to pay you a living wage, and you have no other income or
Attempting to make a sales manager out of your star salesmen may savings, you had better think your deal over again.
also be folly. Use individual skills to the business’ advantage.
If you are preparing a financing plan, your banker will need the Cost of
The scarcest asset you will have is time. To make the most of it, make Living Budget forms to help justify your salary requirements.
sure that you budget your time carefully by spelling out, in advance, Remember: Be realistic.

x who does what; 5. Resources Available to the Business

x who reports to whom; and
x where the final decisions get made. ALL businesses, no matter how tiny, need:

Include: 1. An accountant

1. Time for planning and reviewing plans; 2. A lawyer

2. Major operating duties (purchasing, sales, personnel, promotion, 3. An insurance broker

production, and so forth) as appropriate for your business.
If you don’t have these, get them immediately!!
3. Planning
Other sources of assistance include:
The purpose of your plan is to make your business run more
smoothly. If you find you spend a lot of time solving yesterday’s 4. Business Information Centers
problems, stop, get out of the shop, sit down and start planning so you
don’t perpetually run in circles. 5. Chambers of Commerce, Regional Planning Commissions and
Councils
Allocating duties and responsibilities is critical. If the chain of
command is unclear to your employees, you will have the worse kinds 6. Business, trade, civic organizations often have a pool of talent
of personnel problems. This is a major responsibility of management available to their members
and must not be evaded under the guise of "we can work it out later
when we see where the problems are." 7. Small Business Administration technical assistance, ACE and
SCORE programs

8. Consultants

9. Colleges, universities, schools

10. Federal, state and local agencies

11. Your Board of Directors (if appropriate)

 Don’t forget: your BANKER can be among the most helpful of all due
to the nature of the job. If you borrow money, he or she has a vested
interest in the success of your business.

You won’t necessarily have to use all of these resources (except the
lawyer, accountant and insurance broker), but it is a good idea to
know what help will be available if you need it, and to know where it is
(and who it is) well ahead of time.

By listing these resources, and making yourself known to them, you

can plug many gaps in your experience and increase your chances of
success. Many of them will cost you no more than time and a phone
call.

Summary:
This section is intended to make you aware of the availability of
management skills in your business and available to you outside your
business. Since no one is perfect, there are bound to be some areas
glossed over, but by keeping in mind the necessity of managing your
business rather than letting the business manage you, and by
constantly reviewing and re-evaluating the results of this analysis in This page intentionally left blank
the future, you will drastically shorten the odds against you. Keep this
section short, direct, and honest.
 F. Personnel
G. Application and Expected Effect
Businesses stand or fall on the strength of their personnel. Good
employees can make a marginal deal go; poor employees can destroy
of Loan
the best business. Studies have consistently shown that out of 100
This section is important, whether you are seeking a loan or planning
customers who stop patronizing the average store, over 70 do so
to finance your deal yourself. In determining how much money you’ll
because they didn’t get prompt, courteous attention. Here are some
need and for what purposes it will be used, do not rely on guesses
questions to think about in determining your hiring needs:
when exact prices or firm estimates are available. If you must make an
estimate, specify how you arrived at your figures. It may be helpful to
1. What are your personnel needs now? In the near future? In five
make a three-column list:
years?

2. What skills must they have?

Bare Bones
What you can just scrape by with – secondhand, makeshift, the bare
3. Are the people you need available?
minimum.
4. Full or part-time?
Examples: Bicycle with large basket (Schwinn at $12.50), used desk
at $7.00.
5. Salaries or hourly wages?
Reasonable
6. Fringe benefits?
What you will most likely get – some new, some used, some fancy,
and some plain.
7. Overtime?
Examples: Pick-up truck with insulated camper adapted to icing fish
8. Will you have to train people? If so, at what cost to the business
(used Ford at $1,885), renovated desk at $25.00.
(both time of more experienced workers and money)?
Optimal
Be careful – training personnel can be a hidden cost that you haven’t
What you’d like if money were no problem and you weren’t worried
counted on.
about making a profit.
One excellent personnel control is the job description. Hire people
Examples: Custom-made El Dorado with mobile refrigerator unit
only when it will result in added profitability to your business, and think
(Cadillac custom at $18,500), custom teak desk at $1250.00.
before hiring whether the job is really necessary. If it is, then careful
selection of a person to fill the job will more than repay the time and
Fill out the Bare Bones and Optimal columns first, then make your
effort involved in hiring the best person for that job. There are
reasonable choice. It may be important to you to have a luxury item or
standard application forms you may find useful in the selection
two, but weigh the cost. This tabular worksheet is particularly useful
process. You should also check with the SBA for their booklets on
for a start-up business and can be used whenever a purchase of
personnel management as well as your local Department of
additional equipment is contemplated. Make sure that this section
Employment Security and perhaps get a copy of "Personnel for the
contains responses to the following:
Small Business" from the Small Business Reporter, Department 3120,
Bank of America, San Francisco, California, 94120.
1. How is the loan or investment to be spent? This can be fairly
general (working capital and new equipment, inventory, supplies).

2. What is/are the item or items to be bought?

3. Who is the supplier?

4. What is the price?

5. What are the specific model name and/or number of your

purchase(s)?

6. How much did you (will you) pay in sales tax, installation charges,
and/or freight fees?
Your banker may be interested in using whatever it is that you are
buying as collateral for the loan. By having a list, your loan can be
processed faster.

You should consider the possible advantages of leasing some of the

capital equipment you need and definitely look into the advantages of
renting rather than owning your business building. If you have the
money to buy, owning may (or may not -–ask your accountant) be less
expensive than leasing, but if you are short of cash, a lease
arrangement may enable you to ease your cash problems by lowering
your investment in fixed assets (perhaps a sale/lease back deal).
Leases also have greater flexibility: as your business grows, you can
often make changes more readily. It is also possible to save money on
taxes by deducting lease payments as business expenses. The
technique of BREAK-EVEN ANALYSIS is of great help in making a
decision of this kind.

Most importantly, ask yourself:

7. How will the loan make your business more profitable?

Interest is an expense which reduces profits. If you propose borrowing

money or investing your own, you must know how the money is going FOR MORE INFORMATION CONTACT:
to work for you.
Larry E. Havard

H AVARD
MAKE SURE IT EARNS MORE THAN IT COSTS

& ASSOCIATES
3075 Charlevoix Dr. 546
S.E.
Grand Rapids, Mi 49546
LarryH@Havard.com
616 458 9333 Voice
616 588 6064 Fax