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WIKI: BUSINESS PLAN

1 What is a business plan?

A business plan is a written document that describes in detail how a business, usually a new one, is
going to achieve its goals. A business plan lays out a written plan from a marketing, financial and
operational viewpoint. Sometimes, a business plan is prepared for an established business that is
moving in a new direction.

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2 Why do I need to create a business plan?

A business plan is a fundamental tool that any startup business needs to have in place prior to beginning
its operations. Here are a few reasons why you should build one for your business.

Investors appreciate it
It’s always worth showing to investors that – as a business owner – you are forward-thinking and
prepared to face any obstacle that arises. This is what a business plan for startups shows. It also
provides potential investors with up-to-date financial data so they can gauge their investment with
confidence.

Everyone’s on the same page

Beyond investors, a business plan for startups can create more cohesiveness among the business’
current employees. While business plans are useful for funding, they’re also very helpful for co-workers
and contract hires. This will provide more clarity and make their services as effective as possible.

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Competitors are analyzed

Having a plan certainly aids in the comparative process by clarifying certain specifications – like number
of employees, projected quarterly growth, and overall vision – that business owners should monitor. By
analyzing both startups and established leaders within an industry, you will have a better grasp of where
your business stands in relation to them.

So while not every business needs a business plan that reads like a lengthy novel, having some
semblance of a business plan for startups will result in more attention from investors, improved cohesion
with employees and contractors, educated foresight, and useful competitor analysis. These are all
benefits that can aid a startup business tremendously.

3 What does a business plan look like?

A business plan contains the following: Executive Summary, Company Description, Market Analysis,
Organization and Management, Marketing & Sales Strategies, Service and/or Product Line, Funding
Requirements, and Financials.

Click on the icon to view a sample business plan.

4 How do I make a business plan?

Click here to download the template used in the sample business plan. Each component is described
below. Don't forget to cite all your sources and update your table of contents, if necessary.

Within the overall outline of the business plan, the executive summary will follow the title page. The
summary should tell the reader what you want. This is very important. Clearly state what you’re asking
for in the summary.

The statement should be kept short and businesslike. It should be kept to a ½ of a page to 1 full-page
depending on how complicated the use of funds may be. Within that space, you’ll need to provide a
synopsis of your entire business plan. Have at least two sentences that summarize each section in your
business plan. State the funding requirements so that potential investors can see this right away. Click
here for a guide.

This section should include a high level look at how all of the different elements of your business fit
together. The company description should include information about the nature of your business as well
as the crucial factors that you believe will make your business a success.

Include your company's mission and vision. Add your address and relevant contact numbers, if
available. Describe why your business is important and be sure to state your competitive advantage.
Click here for a guide. View the additional resources for a guide on how to write a mission and vision.

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This section should illustrate your knowledge about the particular industry your business is in.

Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends
and sales potential. Include the results of the survey that you conducted but focus on the questions (and
answers) that relate to market analysis/research. Enumerate your direct competitors and identify their
pros and cons.

This section includes your company’s organizational structure, details about the ownership of your
company, and descriptions of your management team.

Include the job profiles and process maps you created in the previous sections.

This is the lifeblood of your business. Marketing creates customers and customers generate sales. In
this section, define your marketing strategies. Start with strategies, tactics and channels that you have
used to create your greatest successes.

Include the results of the survey that you conducted but focus on the questions (and answers) that relate
to HOW you will reach your customers. Also include key observations and techniques that you learned
during the Trade Show. Answer they question "How will you sell your products?" and "Why did you
choose that method/strategy?". Base your answers on historical data or your market survey.

In this section describe your service and product. What is it that you are actually selling? Make sure to
emphasize the benefits (not the features). Establish your unique selling proposition. This means you
have to show not only how your product is different but also why it is better.

In this section, state the amount of funding you will need to start or expand your business. It is
recommeded that you do this after you prepare your financial statements because your source data will
come from there.

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Aside from stating how much you will need to start and where you plan to get your funding, also describe
your investors' return on investment or ROI. ROI is what investors look for because this determines if it's
a good idea for them to invest in a business. Click here to learn more about ROI.

Develop the financials AFTER you have analyzed the market and set clear objectives. It's best to include
three to five years of historical data. At the very least, prepare the following: projected income statement
after 1 year and projected balance sheet after 1 year.

There are several steps to properly prepare your financial statements. At this point, you should already
have a record of all the transactions that occurred before and during the Trade Show. This is your
historical data.

Step 1: Calculate Break-even Point

Break-even point can be defined as a point where total costs (expenses) and total sales
(revenue) are equal. Break-even point can be described as a point where there is no net profit
or loss. To calculate break even point, you will need product price, variable cost per unit,
and monthly fixed expenses.

Product Price: This should be determined by your market research survey.

Variable Cost per Unit (VCPU): To get the VCPU, you need to list down all the raw materials
needed to make your product. Then, determine how much of each raw material actually goes
into one unit of your product. Convert this to its peso equivalent based on the raw material's
price.

In the example above, the raw materials are listed under column A. The amount at which is
material is sold is under column B. The cost of each unit is under column C. Columns D, F, H,
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and J show how much (quantity) of each unit of raw material is needed to produce a wallet, a
smartphone sleeve, a laptop sleeve, and an earphone organizer. As you can see, it takes 1
square foot of synthetic leather to make a wallet but it only takes 1/4 to make an earphone
organizer. To get the peso equivalent, simply multiply these values by the price of the raw
material. For example, P300 worth of synthetic leather goes into making a laptop sleeve
because it requires 2 square feet of said material - and 1 square foot is priced at P150.

Since the business has four products, there are four difference VCPUs.

To get the break-even point, you will need one price and one VCPU. To do this, you will need a
sales mix. A company's sales mix is the ratio of sales for each product compared to the overall
sales volume of all products. Read more about it here. You will need to determine the
percentage contribution of each of your products to total sales. Base this on how much you
can produce and how well you can sell each product. Use historical data gathered from the
Trade Show.

In this example, the sales mix is shown in the third and sixth columns. To get the weighted
average price and weighted average VCPU of your products, simply multiply each value by its
sales mix percentage. In Google Sheets, you can use the SUMPRODUCT formula. Click here
for a guide.

After computing for the price and VCPU weighted averages, subtract the two figures to get the
Contribution Margin per Unit.

Fixed Expenses: The third and last thing you need to compute for your break-even point is a
list of fixed expenses. Identify the monthly fixed costs of your business. These are regularly
occuring expenditures, NOT one-time costs.

Afterwards, you can compute for your break-even point. This is the number of units that you
need to sell in order to start turning a profit. Note that even after reaching your BEP, you may
still experience net loss in your books. This is because startup costs are usually expensed
outright and they are not part of the BEP computation.

Step 2: Prepare your Financial Statements

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First off, journalize all the transactions you made before (preparation) and during (execution)
the Trade Show. Compute for final balances through the General Ledger and create your Trial
Balance. At this point, you should be able to create financial statements for a few days of
operations. You can multiply this so that it represents one month of operations.

Compute for startup costs: When you participated in the Trade Show, you probably did not
need to spend on equipment, tools, and rent. If you were to set up your business in the real
world, these are necessary. List down all the one-time startup costs that go into your business,
whether or not you actually spent on them for the Trade Show. Read more on the cost of
setting up a business in the Philippines here.

In the above example, Leather Stamping Kits, Heavy Duty Sewing Machines, Chromebooks,
and Furniture & Fixtures are assets. Their total is P41,600. The rest (Licenses & Permits,
Website Design, Telephone Installation, and External Retailer Fees) are expenses. Their total
is P15,000. This is why, in the income statement, only P15,000 is written under Startup Costs.
The rest is in the Balance Sheet.

After determining your startup costs, you are now one step closer to finding out what your
funding requirements are. You still need to figure out how much cash on hand you'll need for
one month of operations.

Create the first month's Income Statement: Multiply your gross sales from the Trade Show to
make it representative of one month. Include all monthly expenses and add startup expenses.

Create succeeding months' Income Statements: Project your business' sales and expenses for
the rest of the year. State your key assumptions and growth rates clearly. Explain why you
believe your sales will increase and how you plan to do it. Note that Income Statements reset
after every month because the net income/loss will go to Retained Earnings.

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In the above example, the only growth is an increase in customization. The business assumed
that at the start, only 10% of the products will be customized. Each customization is priced at
P100. The key assumption is that this will increase by 5% each month, up to a maximum of
80%. Also, sales are expected to increase in the 6th month because a new worker will be
hired. Due to this, there is a plotted increase in salaries.

Create Equity Statements for 12 months: This is an optional step. However, it will be easier for
you to create your projected Balance Sheets if you already prepared Equity Statements.

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The starting figure is the total initial investment you plan to receive. In this example, it's a
combination of partner contributions and external investment. The equity statement does not
include liabilities, or money received from short or long-term loans. Add additional investments
and net income to get the ending owner's equity for the period.

Create Cash Flow Statements for 12 months: This is also an optional step but it will greatly
help you in the creation of your Balance Sheets. List down all the cash inflows and outflows
expected over the course of 12 months.

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Create Balance Sheets for 12 months: The final step is to create your projected Balance
Sheets. Take the ending cash balance of each month from your cash flow statements. This
should be first in your list of assets. Then, list down all assets that you own. This will only
change when you plan to buy new assets or if you think that you will have inventory left over at
the end of each month. List down your liabilities as well. This should only decrease when you
intend to pay your loans. Take the ending equity balance of each month from your equity
statements. If done properly, each month's assets should equal liabilities and equity.

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Step 3: Compute for Funding Requirements

This step is done alongside the previous step. Your funding requirements should be
startup expenses plus expected cash outflow from operations during the first
month. You may need to adjust your financials after fine-tuning how you will allocate
your required funding: debt or equity. Learn more about small business funding
here.

5 Additional Resources

Types of Business Organizations

http://www.accountingverse.com/acco....html
Describe your business properly by reading this guide on business types first.

How to Write Vision and Mission Statements

http://business.tutsplus.com/tutori...ms-43
This is a step-by-step guide for writing your vision and mission statements.

6 Cited Resources

Break-even Point. (2016). Readyratios.com. Retrieved 19 August 2016, from

http://www.readyratios.com/reference/analysis/break_even_point.html

Break-Even Point | Learn more about this term in our online Lean guide. (2014). Continuous
Improvement at the Front Line of Change. Retrieved 19 August 2016, from
http://www.velaction.com/break-even-point/

Business Plan Definition | Investopedia. (2010). Investopedia. Retrieved 19 August 2016, from
http://www.investopedia.com/terms/b/business-plan.asp

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Buxbaum, P. (2015). Online Retail in the Philippines Spurred by Rising Internet and Smartphone
Penetration | Global Trade Magazine. Global Trade Magazine. Retrieved 19 August 2016, from
http://www.globaltrademag.com/global-trade-daily/news/online-retail-in-the-philippines-spurred-by-rising-
internet-and-smartphone-penetration

Mineo, M. (2014). How Important is a Business Plan for Startups?. Marqana Digital Marketing. Retrieved
19 August 2016, from https://www.marqana.com/how-important-is-a-business-plan-for-startups/

Tribby, M. (2013). The Eight Key Elements of a Successful Business Plan and How to Make Them Work
for You. The Huffington Post. Retrieved 19 August 2016, from http://www.huffingtonpost.com/maryellen-
tribby/the-eight-key-elements-of_b_3623800.html

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