Preparing Business Plans

Agdex#:	811
Publication Date:	06/99
Order#:	99-011
Last Reviewed:	06/99
History:	Replaces Factsheet No. 95-077 "Preparing Business Plans"
Written by:	Rob Gamble - Finance and Business Structures Program Lead/OMAFRA; Ellen Helps - Project Coordinator/OMAFRA; Elaine Schneider - Rural Business Consultant/OMAFRA

Table of Contents

1. What is a Business Plan?
2. Why Plan?
3. Giving Your Plan the Right Look
4. Getting Started: Assessing Your Business Idea
5. Components of a Business Plan
6. Supporting Documents
7. References
8. Agricultural Sources of Information
9. Rural Business Sources of Information

What is a Business Plan?

A business plan is a recognized management tool that you can use to document objectives and propose how they will be attained. The plan is usually a concise summary of activities surrounding the creation or expansion of a business. The plan describes the product or service, the customers, the competition, the production and marketing plans, the management, the financing and anything else which relates to the product or service that your business will provide. The business plan is your game plan. It sets objectives and how you will obtain them on paper.

Why Plan?

You may be asking, "Why should I prepare a business plan?" Because it improves the chances that you will succeed at your business venture!

Few people would attempt to build a new building without first preparing detailed plans. The same is true for someone planning to build a business, no matter the size of the business. Businesses need more than money and dreams to keep them alive and profitable; they need careful planning. It's a means of discovering the problems and pitfalls you might encounter before they happen, so that you will be able to make the right moves to avoid them and take advantage of opportunities as they come along. And herein lies one of the main reasons for preparing a business plan — to convince yourself, and others, that you know what you are doing.

The plan has a number of other valuable properties as well. A good plan puts a lot of valuable information at your fingertips, ready to make tough decisions and manage change in your operations. A written plan also puts you, the manager, in a better position to explain your goals: where the business in going, what needs to be done, the role of investors, family members and employees in achieving these goals. It also provides a means to regularly compare your progress with your expected goals and to make changes to your plan where needed. With your expectations and plans clearly laid down on paper, along with challenges and solutions, you'll find yourself better able to express them to your team members, so then everyone understands the common purpose and their role to make it happen.

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A business plan benefits you in another important way too. It's almost mandatory if you want to obtain capital from private investors, venture capitalists or commercial lenders such as banks or trust companies. As well, more government financial assistance programs are requesting a business plan to be submitted with applications for assistance. Why? Because a well prepared plan serves as tangible evidence of your ability to manage, plan and communicate, all skills needed to operate successful businesses.

Giving Your Plan the Right Look

Compiling your plan into a formal, well-organized document is important. In fact, the chances of your business plan being read and favourably received are increased if you use a standard style and format. A bundle of hand-written notes won't impress anyone.

The plan should be well-organized and easy to read. Typically a plan is printed as a 8.5 x 11" booklet and is usually 10 to 30 pages in length. It should be double spaced and have adequate margins for adding notes and questions. Don't try to overwhelm your reader with too much detail. They will ask for more information if they need it. Avoid using jargon and, whenever possible, you should use calculated figures, instead of words, to make your plan more convincing. It will help your reader too if you use lots of headings and subheadings throughout the document that are listed clearly in a table of contents.

Remember, your readers may be key employees who you want to help you "make it happen" or a lender sitting in a distant office, so use any tool that can help them to understand your information. Place the most essential information where it is easy to find, probably close to the front of the document. Some lenders see many, many plans a week so make sure the main components of your plan can be read in five minutes or less. Charts, tables, photographs or sketches of your product or service are useful. Patent information and resumes are also important. The appendices are a good place for supplemental information such as technical reports, studies, catalogues and so on. Ask an outsider you respect to read your final draft and provide constructive criticism.

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Getting Started: Assessing Your Business Idea

Because careful planning can be critical to the success of your business, it's important as you go through the process of planning to examine every aspect of your business carefully and honestly. Be realistic in assessing what you're capable of and the opportunities that exist for your success. Some questions you should be asking yourself are:

• What is the purpose of my business (be able to express it in a couple of short sentences)?
• What is the specific market that I want to fill? Are customers willing and able to purchase my product or service?
• What are my personal and business goals? Are they SMART (specific, measurable, attainable, realistic and timely)?
• Do I have the necessary skills, ability and resources?
• What are my approximate cash needs at start-up and beyond? Do I have the resources? If not, where could the funds come from?
• Am I willing to take the time to plan my success?

The answers to these questions will help you to determine the feasibility of your ideas. Where can you obtain information? Some of these questions are personal and you need to sit down and assess your current situation. Other answers can be found by researching newspaper clippings of interest to your line of business, marketing tidbits you may have learned from employees, salespeople, suppliers, or competitors. The internet, trade magazines, seminars, industry contacts, government agencies, and libraries are other sources of information to help you assess your ideas. There are also many well-written books on the planning process. Contact your local Ontario Ministry of Agriculture, Food and Rural Affairs and (OMAFRA) field office or Business Enterprise/Self Help Centre for more information.

Write down your thoughts and organize your information under the same headings as those used in the formal plan for easy reference. It could effectively be kept in a large loose-leaf binder with appropriate dividers separating the major components. At the front, have your business goals and objective, both short and long term, to keep you on track. Be aware of information gaps so that you can fill them in when you have obtained the information. Initial and date any notes you add. This working file of information, called the informal business plan, will also be useful when you're ready to develop your next formal business plan as well.

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Don't rush the planning process, but make efficient use of your time. It may take up to six months to complete the plan, therefore, consider setting aside some time in the off-season to work on it. If you are planning with others set aside time for everyone so that each can devote their full attention to the tasks. Assign follow-up work to individuals to collect specific pieces of information. Remember, you may use outside professionals, such as lawyers and accountants, but the plan should be your own. You should be able to present it, summarize it, and answer questions about it.

Components of a Business Plan

A business plan is actually a compilation of several sub-plans. A complete business plan will include a summary section with a Title Page, Table of Contents, an Executive Summary and Business Profile, as well as sections outlining the Marketing, Production (Operations), Human Resources (Management), and Financial plans. No two businesses are alike and the nature of your operation will govern the emphasis you give each component. But, for presentation to lenders, your plan should contain at least some information in every section.

Components of Business Plans

1. Title Page and Table of Contents
2. Executive Summary and Business Profile
3. Marketing Plan
4. Production Plan
5. Human Resources Plan
6. Financial Plan

There are detailed written resources in print and on the internet that explain and provide examples of the process of preparing business plans. Your nearest Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) field office or Business Enterprise/Self Help Centre can help you access these.

Title Page and Table of Contents

The title page should include the name of the business, the period of time that the plan covers, the date that your plan was prepared as well as a contact person, phone number, and address. The title page should look professional: it is the first page your readers see and first impressions are important.

The Table of Contents lists the topics covered by the plan. As a road map it allows the reader to jump immediately to those sections which are of most interest.

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Executive Summary and Business Profile

More and more today, people have less time to read through a thick document. This section should attract the reader's interest and provide them with the basics:

• Purpose and concept of the business (or why you believe the marketplace needs your product or service).
• Business targets (projections in terms of units and dollar volumes during the time period that the plan covers) and how you plan to attain them.
• Required financing and sources, how the funds will be used, and how the funds will be repaid.

Along with this, you should include a brief description of company organization and ownership (for example sole proprietorship, partnership or corporation). If you haven't decided which is best for you, consult with your accountant and lawyer or your local OMAFRA field office or Business Enterprise/Self Help office.

Other useful information includes management, previous financing (by whom), proposed start-up date of operations, important details of your company's current market area, customers and trends that the proposed business can build upon and realize an opportunity.

The Marketing Plan

In this section you will describe, in general terms, the industry in which you operate and your strategy to penetrate or develop the target market, how much you plan to sell, who your customers are, how your products will be priced, and how you will promote your product. Your full marketing plan and strategy need not be included in the business plan but you will want to consider and evaluate a number of alternatives in the planning process before finalizing your marketing plan.

Sales are frequently the only revenue a business has so the following will be of most interest to an investor or lender:

• The plan should show evidence that you are aware of market conditions (size and structure), the general economy and your competition.
• The implications of change (or trends), new technologies, new products, different lifestyles, ability of customers to afford the product or service.
• The implications of legal or political constraints on how your products are produced and delivered.
• The competitive advantage of your product or if it fills a particular niche in the marketplace.
• The basis for pricing your product and service based on costs, the competition, or what the market will bear.
• The geographic location in which you will concentrate your promotions.
• The best way to distribute your product or service to your customers (be guided by your competitors unless you know of a better way).

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In formal terms, your marketing plan should address the four P's of marketing: product, price, promotion and place (distribution). It should also strategically identify where you are now, where you want to go, and how you're going to get there.

A critical component will be a projection of sales. Where you are required to make forecasts, you should make at least three sets of projections: "optimistic", "pessimistic", and "most likely" scenarios.

The Production Plan

Sometimes called the operating or manufacturing plan, in this section you should prepare a brief outline of the basic operation of your business. This may be obvious to you, but not necessarily to your readers. Consider including:

• How the product is manufactured or how the service is to be provided.
• Where the supplies and material will be purchased and how your product is packaged, warehoused and shipped.
• What after-sales service is required (repairs, warranties, etc.).
• What land, buildings, facilities and equipment are required including costs and financing (lease or own), renovations, local taxes and utility costs.
• What employee and management plans are required including how you intend to access skilled labour if required.
• The business location that you have chosen and explain why it should serve your business needs, proximity to customers, suppliers, transportation costs, and location of competitors.
  

The production capacity, turnover rates or services that can be realistically achieved with the existing or proposed plan and staff.

The Human Resources Plan

Management is critically important to the success of a business. Investors or lenders are looking for a balanced team of people to cover the important areas of management, marketing, accounting, and the technical skills to deliver on your business plan.

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Human resource management requires thinking about how you will recruit, screen, motivate, train and discipline the staff you work with. You should summarize the following areas:

• Name the key people operating your business, and outline the education or experience each of them brings to it (have resumes available in case they are requested).
• Explain how key areas of the operation are handled and by whom. An organizational chart may be useful. Indicate contingency plans if a key person cannot work for an extended period of time.
• Indicate any weaknesses in your management team and your strategy to overcome them and in what time frame. Training existing staff, recruiting new employees or hiring outside advisors (name them) are some of the possibilities.
• Indicate whether salary and compensation of managers and employees are competitive with the industry and whether you are offering incentives such as commissions, bonuses or profit sharing.
• Name your board of directors or professional advisors and indicate how management will use their experience and guidance. Indicate the timing and frequency of board meetings.

Recognition of the contribution made by employees to an organization is one key to the growth and success of a business. Your plan should outline how you intend to identify, recruit or promote key people and maintain a strong sense of collective achievement with all employees.

The Financial Plan

The financial plan is a key component of your business plan. That's because the process of creating financial projections for your business revenue and expenses, cash flow, and financial position will force you to examine all of the other key components of your plan. In doing this you will be able to describe your plan in dollars and detect any discrepancies, gaps or unrealistic assumptions made earlier. The financial plan also is a valuable tool for creditors or government agencies when evaluating your company's needs and uses of funds. OMAFRA provides a wide range of factsheets and worksheets. Please refer to the "Sources of Information Section" at the end of this publication.

1. Income Statement

The purpose of the income statement is to disclose the annual revenues and expenses of a business over the period of time that the plan covers. For an existing business, include information for at least the last one or two years.

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2. Cash Flow Summary

Of all the supporting documents, the cash flow projection is the one you may find the most difficult to prepare. Basically, it is an educated guess about when and how much money you will have coming into and going out of your business. Your cash flow forecast will enable you to decide what you can afford, when you can afford it, and how you will keep your business operating on a month to month basis. This information is useful to indicate the projected increases or decreases of a bank loan that may be required during the year. Quarterly summaries are often adequate but occasionally monthly summaries are required for the first year of operation.

3. The Balance Sheet

The balance sheet describes the assets, the liabilities, and the equity of your business at a particular point in time. It is a widely used accounting statement that indicates the economic resources of your organization and the claim on those resources by creditors. This information is useful in that it allows you and your creditors to compare your estimates, as well as your past performance, against industry averages.

4. Capital Sales and Purchases

Investors and lenders will require detailed information on the capital purchases that are anticipated during the planning period as well as information on how these assets are to be financed and the expected useful life of the assets. Capital assets include land, buildings, and equipment.

5. Financing Schedule

The financing schedule or loan summary should provide your reader with a snapshot view of existing and new loans that will be held by your business. Information should outline the interest rate being paid, frequency of payments, security given, type of loan (amortized versus non-amortized), the expected term of the loan. For existing loans the name of the financial institution should be indicated.

No one expects you to make a profit in the first month, quarter or in some cases year. There should be light, however, at the end of the tunnel. Interest on loans is repayable from your first day of operation, and you must have a return on your investment, both time and money, within a realistic time frame if your business is viable.

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Supporting Documents

Supporting documents that you would consider including are:

• owner's and all partners resumes which should include training, experience, role in the business, credit background and a personal statement of net worth;
• resumes and job descriptions of key employees;
• credit reports, letters of reference (personal and financial);
• names of professional advisors (technical, legal, and accounting);
• copies of any contracts, leases, or patents.

But, whatever you use, be sure to include them in such a way that the reader understands the merit of the information and that the result will look and read like a business plan, not a scrapbook.

By taking the time to develop a sound, carefully thought out business plan, you're taking an important step toward attaining your goal, a business that's viable and profitable. Is it a lot of work? Yes. Is it worth the time and effort? Well, successful businesses advocate it. Bankers and government officials demand it. Venture capitalists require it. But you're the one who can benefit the most from it if you make it a road map for reaching that goal.

References

Developing Rural Business Opportunities, Ontario Agricultural Training Institute, 1992, web site: www.oati.com

Guide to Preparation of Business Plans for Agricultural Crop Producers, Transition Crop Team, Ontario Ministry of Agriculture, Food and Rural Affairs, 1988.

How to Prepare a Business Plan, Ontario Ministry of Economic Development, Trade and Tourism. Web site: www.ontario-canada.com

Preparing a Business Plan: A Guide for Agricultural Producers, L. Owen, British Columbia Ministry of Agriculture and Fisheries.

Starting a Small Business in Ontario, Ontario Ministry of Economic Development, Trade and Tourism, web site: www.ontario-canada.com

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Agricultural Sources of Information

Publication 37, Farm Financial Analysis and Planning Workbook, Ontario Ministry of Agriculture, Food and Rural Affairs, web site: www.omafra.gov.on.ca

Farm Accounting Standardization Manual: A Manual of Farm Accounting Terminology, Reporting Policies, and Ratios, Farm Accounting Standardization Review Committee, Farm Credit Corporation or by talking to your local OMAFRA specialists.

Rural Business Sources of Information

Industry Canada’s business web site. A world of information for business: www.strategis.ic.gc.ca

The Canada-Ontario Business Service Centre is a joint federal-provincial information centre for new and established entrepreneurs. www.cbsc.org/ontario/

Rural Business Planner CD ROM Canadian Farm Business Management Council, www.cfbmc.com

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