Business plan guide for entrepreneurs and startups

1. Business Plan
Guide

2. Executive summary
This is the single most important chapter of the business plan. It must summarise in
not more than 500 words the whole argument, which is set out in greater detail in
the following chapters. Hence all the following chapters that are included should be
included briefly, yet carefully in the executive summary. The Executive Summary will
be the first thing that is read by the prospective financier. In a number of cases it
may be the only chapter which is read if it fails to present a convincing case. Most
financiers receive many more requests for funds than they are able to grant and so
are not highly disposed towards unravelling a potentially doubtful proposition. There
is a real danger that the Executive Summary may fail to perform its function since it
is inevitably the last section to be written. It may seem to be a simple matter to write
only one or two pages. The writers will be confident that they have ironed out all the
problems and they may feel that even if the Executive Summary is not completely
clear, all the necessary information is in the document somewhere. However, it must
not be assumed that the potential financier will take the trouble to search through
pages of data to uncover vital information. The executive summary includes
information regarding the field of business in which the company is planning to
focus, the objective for this decision and why the management expects this venture
to be invested
It will be critical for you to produce a company mission statement and a vision
statement. The mission statement will define the essential character of the company
and will set out what the company is aiming to achieve and your backers will hold
you to this. It will state what business the company is, not in terms of the technology
that it employs but in terms of the type of clients it supplies. Most importantly, it will
say how the company is uniquely different from any of its competitors. The mission
statement will demonstrate how the company satisfies clients’ needs better than
any other company. The Vision Statement also defines the organizations purpose, but this
time in terms of the organization’s values rather than bottom line measures (values are
guiding beliefs about how things should be done.) The vision statement communicates both
the purpose and values of the organization. For employees, it gives direction about how they
are expected to behave and inspires them to give their best. Shared with customers, it
shapes customers’ understanding of why they should work with the organization.
A statement on the company’s corporate objectives will be required. This will declare aims in
terms of growth of turnover and market share. These will be given for both the short term
and the long term. The executive summary should include critical information regarding the
venture, as for example the management team with biographies. We all know that in the
end it is the people who make the idea happen so a good management team provides trust
to the investor. A time plan that will indicate the timing of the goals set and whether the

3. team has been able to achieve its initial plans should also be included at this part of the
document.
SWOT Analysis
SWOT which stands for Strengths, Weaknesses, Opportunities, Threats, is a way to analyze
and evaluate your current situation and environment. While it's typically used for strategic
planning in business settings, it can also be used in goal setting to help you identify goals
that will give you the most benefit. It is a way of matching your internal capabilities,
resources and liabilities with the external factors you are facing.
You start by identifying your strengths, which represent your internal capabilities and
resources in this result area. Here are some questions you can use to help you get started:
 What are your core competencies in this area?
 What relevant skills, talents or abilities do you poses?
 What resources do you have at your disposal?
 What specialized knowledge or expertise do you have access to?
 Who can you ask for advice, support or help?
 What special/proprietary tools can you use or develop?
 What is already working well in this area? What related strengths does that reveal?
Keep in mind that not all of these questions will apply to every result area. Just use the ones
that make sense to help you identify your strengths.
The next step is to identify your weaknesses, which represent your internal liabilities. In
many cases, the lack of a strength or resource can be considered a weakness. Here are some
ideas to help you identify your weaknesses:
 What are your main liabilities in this area?
 List all the relevant skills, abilities and talents that you would find helpful in this
result area. Which ones are you the least good or proficient at?
 List the specialized knowledge or expertise that you would find helpful in this result
area. Any knowledge or expertise that you lack could be considered a weakness.
 Are there any resources (money, time, and help) that you currently don't have
access to?
 What is not working in this area right now? What related weaknesses does that
reveal?
Your strengths and weaknesses give you an idea of your internal capabilities, resources and
liabilities. The next step in SWOT analysis is to identify your external opportunities for profit,
growth and improvement. Some ideas to help you identify them:
 List the opportunities that you have been considering.

4.  What things could you improve in this result area?
 Think of one thing you could do that would significantly improve your situation in
this area.
 What important goals could you pursue?
 How can you take advantage of your strengths?
 Can you take advantage of any changes in your environment or circumstances?
 What opportunities would become available to you if you eliminate some of your
weaknesses?
Now identify your threats, which represent external events, environmental factors, or
changes that could affect you negatively. Here are some ideas to help you identify some
threats:
 Make a list of serious risks you are facing in this area if you continue along your
current path.
 What obstacles or roadblocks are impeding your progress?
 What environmental factors are affecting you negatively?
 Think about how current changes to your environment or circumstances could affect
you negatively.
The whole point of doing a SWOT analysis is to help you identify the most beneficial targets
and strategies to pursue right now based on your current situation, and to identify strategies
that will help you prepare for the future.
You do this by analyzing the four quadrants of the SWOT matrix.
SWOT Quadrant I - Strengths/Opportunities (SO)
This quadrant focuses on goals and strategies that take advantage of your core strengths to
aggressively pursue the best opportunities at your disposal. This is particularly important if
the opportunities are short-lived. An example would be to utilize a temporary competitive
advantage to gain market share in your business.
SWOT Quadrant II - Strengths/Threats (ST)
This quadrant focuses on goals and strategies that utilize your strengths to actively eliminate
or reduce threats you are facing.
SWOT Quadrant III-Weaknesses/Opportunities (WO)
This quadrant focuses on goals and strategies that can help you open up opportunities down
the road by working to reduce some of your weaknesses (or making your strengths even
stronger). You can use this quadrant to help you prepare a long-term improvement plan.

5. SWOT Quadrant IV - Weaknesses/Threats (WT)
This quadrant focuses on goals and strategies that can help you mitigate and avoid threats
that could result from your weaknesses. You could do this by eliminating the weaknesses
and turning them into strengths, or by developing defensive strategies to reduce the
likelihood or severity of the threat.
Market
The market represents the environment that surrounds the company; in other words, it is
important here to provide information regarding the market for the new product in terms of
size, state of development, types of customers and competition. In a sense we can say that
by identifying the above, the entrepreneur identifies tha appropriate target group for the
product in question, hence increases the chances to be sold successfully, as analyzed further
on.
Segmenting the market in terms of geography will be the first step you will engage in; this
proves useful regarding consumption of the product in terms of geographic location. For
doing so, analyzing the market size will be essential, i.e. if the company has the resources to
sell the product in one country only or the ability to move regionally or internationally.
Apart from geographic segmentation, it is also essential to segment in terms of customers
and competition; more specifically:
Regarding customers, it will be useful to break down consumption of the product in question
depending on different types of customers, i.e. try to reflect the needs of customers who
will be the prime target for the product and distinguish customers in terms of turnover
Regarding the competition the company will face, it will be important to provide information
on the number and the capabilities of its competitors. Knowledge of existing competition is
essential in order to develop a credible business strategy. Below we also provide a checklist
of some key issues that we believe should be included under this category:
1) What is the geographical scope of the market: World? Europe? Local?
2) What is the market value in terms of units and value?
3) How fast is the market growing and where are the opportunities? Which market
segment will you concentrate on and why?
4) What market share are you aiming for?
5) If there is no existing market or if the market is being developed when are the expected
breakthrough dates?
6) How would your company’s entry affect the market?
7) What is the market structure? Are there many small customers or a few large
customers? What do the customers do with the product and how much is their business
worth?
8) What are the key requirements of your customers?
9) How will your company meet these needs? Current and future?

6. 10) Who are your major competitors? What are their strengths and weaknesses? What are
their patent positions, potential, operating methods and profitability?
11) How will they react to another player in the market?
12) What is unique about your business?
Product
This chapter will answer questions relating to what the product is and why anyone would
want to buy it. The entrepreneur should be careful in explaining technical aspects of the
product in as simple terms possible so tha the reader will be able to understand it.
The vital aspect in this section will be to identify just one Unique Selling Proposition (USP)
for the new product. Some possible propositions include the products ability to be delivered
at a lower price, its higher quality, longer life or faster operation, among others.
Furthermore, you must indicate how important this USP is to customers in terms of value. It
will also be beneficial to compare the product with that of competitors in terms of the end
use segments of the markets, their USPs, their weaknesses, pricing etc, in order to highlight
the advantages of your product.
CHECK LIST
1) Describe the product, process or service in simple terms.
2) Is it available for sale and, if not, when will it be ready? At what cost?
3) Do you have legal protection and if not why not? Have you taken advice on patents?
4) What is the Unique Selling Proposition (USP) of the product or process?
5) Will you provide other services such as warranties, guarantees or after sales service?
Marketing
This chapter includes the strategy as to how the company will develop its USP. Obviously a
price will have to be established at this point, which in the case of new products can prove
to be difficult. It is usually possible to determine a price based on analysing the added value
offered to the customer by the product, in correlation with the relevant manufacturing,
marketing and distribution costs. At this point we should distinguish between marketing
and sales. Marketing is the process described earlier, under the “market” chapter, whereby
a customer need is identified and quantified, whereas sales, on the other hand, is the
process of communicating with potential customers and converting their interest into
orders. Essential sales strategy elements include the following:
 Identification of a sufficiently large number of individual potential customer
companies
 Identification of individual purchasing decision makers within each company
 Establishment of a priority listing of customers according to sales potential
 Training of sales personnel in selling techniques

7.  Development of an effective sales message
 Communication of the sales message to potential purchasers
 Provision of suitable answers to sales resistance and objections
 Conversion of customer interest into a purchase.
This procedure calls for a plan involving the use of a sales force, distributors, agents,
advertising, publicity and the production of promotional brochures and videos. Management
monitoring and control procedures will have to be installed to ensure that the right
customers are being contacted, at the right frequency and that target performances are
being achieved. Decisions on all of these points must be translated into the resulting
commitment to staffing levels and associated costs.
CHECK LIST
1) Have you obtained prices of competitive products or processes?
2) Have you prepared a detailed cost breakdown for each stage of the product’s
manufacturing and sales?
3) Have you developed a price performance analysis comparing your product with that of
competitors?
4) Have you set a price based on steps 1 to 3 including discounts and terms?
5) Have you prepared product literature / leaflets or datasheets on the product?
6) Prepare a press release for the media and articles for serious journals
7) Prepare an advertising and promotional budget.
8) Prepare sales force training programmes and possible responses to enquiries.
Organisation/ Management
This chapter gives an introduction to the business and the executives who are making the
application for the funding. The aim is to inspire confidence in the potential financiers that
the business is financially soundly based and the executives have the appropriate
management and entrepreneurial skills. The reader is trying to assess whether this team will
be able to transform an unproved product into sales, which will exceed costs!
Furthermore, an integral role for the business plan will be the need to demonstrate to the
financiers that the business will be suitably controlled once it commences trading. It will be
necessary to produce regular records, which are useful, both to the management of the
company itself and external authorities such as tax inspectors, accountants and banks. It is
necessary for the executives of the new venture to determine what the key indicators of
successful performance are in every important sector of their particular company. Systems
must then be devised for collecting the relevant data on a regular basis, analysing it and
then presenting the conclusions in a simple way which nevertheless paints a comprehensive
picture of the state of play at any one moment of time.
The three principal areas in which control is required are:

8.  Financial
 Sales
 Manufacturing
In the area of financial controls it will be necessary to decide whether the venture will be of
a sufficient size to warrant the services of an in-house accountant. This would be the
preferred option for any company that planned to grow to an appreciable size. However, if
the resources were not sufficient in the start up phase, the alternative would be to appoint
someone within the company to carry out the function of bookkeeper on a day to day basis
and then use a firm of accountants to process the data at regular intervals.
Sales data will most conveniently be collected and processed by a member of the sales
force. Information required may include records of sales by product type, sales by individual
customer, sales by individual sales representative, sales generated per visit, and sales
generated by telephone call. Customer record files or cards will be needed which summarise
the sales achieved, the sales visits and calls made together with the main points of the
discussion. Other additional types of record may be considered to be relevant.
Manufacturing records will be required which can be used to analyse the cost, efficiency,
speed and quality of production, the time required for the manufacture of individual
components, scrap rates, the output rate of individual machines, material costs, power
consumption etc. These will be best collected and analysed within the manufacturing
department but they will also have to be made more widely available within the company to
people like the accountant so that they can be analysed in the context of the total business
costs.
Financial Requirements/ resources/ results
The forecasts of sales and cash flow, and hence ultimate profitability, will be the bedrock on
which the potential financiers will assess the future viability of the business. It follows that
these forecasts will come under severe scrutiny and critical judgement.
Sales Forecasts
The sales forecasts cannot be simply a series of numbers plucked out of the air as a result of
wishful thinking. This is an area that is likely to come under vigorous cross-questioning from
the financiers during the application for funding. The forecasts must have sound backing
from the information which has been described in the earlier chapters of this brochure, i.e.
market size, customer needs, customer segmentation, state of development of the market,
strengths and weaknesses of competitors, etc. In addition, it will be necessary to add
supporting evidence from the company’s current trading activities such as volume of orders
on the books, trading levels with key clients, historical growth of business in the targeted
market sector.

9. Cash Flow Forecast
Once a sales forecast has been prepared it is possible to calculate the cash flow forecast for
the period of the business plan. This is an estimate of the net cash position of the company
on a month by month basis. The cash flow forecast will itemise the difference between the
income from forecast sales and the planned monthly expenditure for all known liabilities
such as rent, rates, wages, material costs, interest payments etc. Some of these payments
will occur on a regular monthly basis while others may be at more irregular intervals, such as
material purchases and capital investment in plant and equipment. A further complication is
that there will be a protracted time delay between the purchase of raw materials and the
receipt of cash from customers. Large customers may well expect to be given the provision
to make payment of invoices 60 days after delivery and in many cases may delay payment
significantly beyond that. The company from the time of their purchase must therefore
finance the cost of the materials until such time as the payment is received from the client.
It therefore frequently occurs that the company will experience a heavy cash outflow
despite a buoyant level of sales. This is especially the case at the start of a new venture
when capital investment and associated start-up costs may significantly outweigh the
income from sales. It will therefore be essential to write into the business plan the provision
of sufficient working capital either in the form of a bank overdraft or a loan to cover the
heaviest cash outflow that can be foreseen.
Break-even Forecast
The ultimate confirmation of the viability of the business venture is the demonstration of
the break-even point when sales revenue first equals the sum of fixed and variable costs.
Fixed costs arise from regular payments, which are not affected by changes in the short-
term level of sales. These include items such as rent, rates, and interest payments on loans
and administration costs. Variable costs include payments, which vary in proportion with
changes in the level of sales revenue. Examples of this include material costs and energy
costs. The question of whether labour costs are fixed or variable costs is one that must be
answered in terms of the nature of the business. In some situations labour may be available
on a freelance or subcontract basis in order to carry out specific job-related tasks. In other
cases the company may retain a labour force with a high level of specialist expertise and it
would not be feasible to decrease and increase labour costs in line with fluctuations in sales
revenue. The break-even point of the venture is not an immovable milestone. Its timing can
be adjusted significantly according to whether the costs of the operation are predominantly
fixed or variable. It will be necessary to calculate a number of alternative break-even
scenarios, i.e. best and worst case and showing sensitivity or robustness. Repeating the
calculations by inputting different assumptions on sales revenue and direct and variable
costs does this. In order to produce a comprehensive financing plan for the new venture, it
will be necessary to build up the break-even calculations in conjunction with a pro-forma
balance sheet and a pro-forma profit and loss statement covering the projected five year
period after start up. Converting the estimates and policy decisions of the previous chapters
into hard numbers will produce these.

10. The Pro-Forma Balance Sheet
The balance sheet will be a statement of the source of funds for the business in terms of
loans, equity participation and retained profit and how these have been allocated. The
allocation of the funds will be broken down according to investment in fixed assets of plant
and equipment, and also current assets, which are defined as working capital. The current
assets refer to the stock of materials and completed manufactured goods and also cash
funds, which are held by the company. The balance sheet will also itemise the company’s
current liabilities, which are money owed to creditors, bank overdraft and tax liability. The
balance sheet is a tabulation of pure numbers and there is no identification of the nature of
the individual creditors, sources of loans and equity, or the type of fixed assets, which have
been purchased. These will, however, be identified elsewhere in the plan. The assets and
liabilities are defined from the point of view of the business as an entity and not from the
point of view of the creditors or the providers of finance.
The Pro-Forma Profit and Loss Statement
The function of the profit and loss statement is different to that of the balance sheet. While
the latter will include a reference to the retained profit of the company, it will only do this in
the context of a source of finance for the company and will not indicate how the profit
arose. The profit and loss statement is a tabulation of the gross sales income to the company
from which must be deducted all attributable costs. For the purpose of the business plan it
will be necessary to prepare the first year’s projected profit and loss statement in some
considerable detail. This is likely to require the year to be broken down into monthly figures
or on a quarterly basis at the very least. For the remaining four years of the five-year
business plan it will be adequate to produce annual profit and loss statements. The
assumptions on which the figures have been produced must be clearly stated. As with the
break-even forecast, it will be necessary to test the sensitivity of the forecasts by producing
additional statements based on lower sales income figures and higher figures for costs and
expenses. The initial deduction from sales income is the cost of the goods sold. This gives the
gross profit. The cost of goods sold is calculated by totalling all the relevant variable costs,
i.e. the material and labour costs. It will not include the cost of the machinery on which the
goods were produced or the cost of the factory, which was constructed for their
manufacture. Next, it is necessary to deduct operating expenses from the gross profit in
order to arrive at the profit before tax (PBT). The operating expenses include rent, rates,
administration costs, depreciation, advertising costs, and other overhead costs. Finally,
having arrived at the profit before tax, it only remains to deduct the tax payments, the
interest charges and the directors’ emoluments. This leaves the profit after tax from which
dividends to the shareholders are distributed. The steps, which have been followed in the
preceding chapters of this brochure, will have finally led to the provision of sufficient data to
enable the financing requirements of the new venture to be defined. The details of financing
sources will vary throughout the EU and from time to time. It is thus essential that expert
advice be sought on what options are open to a particular business venture and what their
relative costs will be before a formal application is submitted. The main options available will
be equity participation by a venture capital company, long term and short term loans, bank
overdrafts, mortgages and debentures. In deciding on the financing package it will be

11. necessary to specify the need for working capital and the need for capital for the purchase
of plant and equipment. The timing of the financing must be specified and whether this will
be required in phases or in a single lump sum. The funding by the proprietors must be
specified since it will normally be a pre-condition that the backers commit a satisfactory
level of their own resources before the financiers are willing to advance any money. The
question of the availability of assets as security for loans must be considered.
CHECK LIST
1) Does the business have firm orders?
2) Which customers are expected to place orders in the first year? How much and when?
3) What market research data is to hand to support a sales forecast?
4) Prepare a sales forecast for each major product group
5) Prepare a system for updating the sales forecast at regular intervals.
6) Based on your financial projection state how much cash you require to set up the
business and state when repayment will be.
7) Based on the cash flow forecast, explain when you will need key amounts of resources.
8) How much money will come from you or the parent company?
9) Where do you expect to raise all other funds? Overdraft? Bank loan? Venture Capital?
Share issue?
10) If you are issuing shares how will you value the business?
11) What is on offer to an outside investor?
12) What exit route is available to an investor?
13) What security, if any, is available on a loan?
14) How could the business fail and what is the level of risk?
15) How do you intend to manage or minimise these risks and their consequences?