The document outlines the essential components and significance of a business plan for a health organization considering the purchase of an MRI. It emphasizes the importance of identifying and addressing key questions related to the venture, including market analysis, financial feasibility, and organizational structure to assess the project's viability. The planning process also highlights the need for comprehensive forecasting, including cash flow and profitability analysis to ensure sustainable operation and successful implementation.

1. Appendix A
Business Plan Assignment
The Business Plan will be about health organization thinking
about buying MRI.
One of the ways that organizations prosper is through the
introduction of new programs, projects, and other ventures. A
business plan is a document that provides the information
needed to determine whether the venture is likely to fail or to
succeed. A business plan should help you assess whether the
proposed venture is sensible, whether it fits the organizational
mission, and whether it will be financially viable.
WHY DEVELOP A BUSINESS PLAN
The more time and effort managers put into a project, the more
committed they become to it, and the harder it becomes to
recognize the project’s limitations. So the first and foremost
reason for developing a business plan is to discover weaknesses
and eliminate bad proposals at an early stage.
If the plan provides evidence that the proposed venture is a
good one, then the plan becomes a vital tool in a number of
ways. It provides the details of why the idea is a good one,
supporting the idea with evidence instead of merely opinion. It
helps to clarify what we do and don’t know about the venture.
It provides a basis to identify and analyze elementary tools for
convincing others (e.g., our boss or investors) that the idea is a
good one, worthy of financial support.
A business plan also serves other purposes. First, it
communicates the purpose of the project to everyone throughout
the organization. The plan also provides a road map for the
future, laying out the steps that will be needed to fully
implement the new venture. It should include a formal statement
of both financial and nonfinancial goals for the project, and
forecasts of what resources will be needed and how they will be
obtained. These resources are not only financial, but also

2. include elements such as management talent that will be needed
to implement and run the new program. Finally, we prepare a
plan so that we will have a basis for assessing and controlling
organizational performance once the venture is fully
operational.
QUESTIONS THAT DRIVE A BUSINESS PLAN
A business plan document represents an effort to provide
answers to many questions:
· What is the venture that is being proposed?
· Why would our organization want to do it?
· Who will we provide products or services for?
· How much will potential customers pay?
· How many potential customers are there?
· What will our share of the market be?
We must be as clear as possible in defining the business
concept. To make an evaluation of a project, we need to know
whether we are responding to an opportunity or a competitive
threat, or simply following the next logical step in achieving the
organization’s mission. We must clearly identify the customer
for the products or services that will be provided.
Understanding the likely possible pricing and demand for the
product or service is critical. Similarly, we must address
questions related to marketing approaches. There are also many
questions about specific operating issues that need to be
addressed. Where will we do it? Location may be a critical
factor in the success of any venture. How will we do it? That is,
we need to have some information about the specific operating
elements. Who will do it? We need to know both the specific
individuals and the organizational elements. Will someone try
to stop us from doing it? We cannot consider only our plans
without considering the likely response from our competitors.

3. Four final questions are critical. What resources will we need?
If we cannot obtain adequate financing, it is often best not to
try to undertake the project. A good idea may waste an
incredible amount of time if there is no mechanism that can
result in sufficient funding to get the project off the ground.
Can it sustain itself? Even if the project fills a tremendous need,
we must evaluate whether it can be financially viable. If it can’t
be, then we need to directly address the question of where a
sustaining subsidy might come from. What can go wrong and
what will we do if it does? We can never anticipate all problems
that may arise. However, the biggest problem with most new
plans is that there are risks of failure. To the extent possible we
must try to anticipate those risks so that we can evaluate
whether the potential payoff justifies taking those risks. Finally,
if it’s such a good idea, why isn’t someone already doing it?
This is a tough question, but it is one that is worth thinking
about.
THE PLANNING PROCESS
The first step in the process of developing a business plan is to
define the business concept. Make it extremely clear what the
project will be all about. Next, gather the data we need to
answer the questions posed above. As the data is collected,
focus and refine the concept. In other words, the project we
wind up proposing in a finished business plan is likely to be
very different from the one we started with. As we learn more
about what might or might not work, the plan should evolve. If,
after gathering all the data, things still look positive, put the
plan in a “high-impact” format. Remember, you likely will be
competing for resources.
THE ELEMENTS OF A BUSINESS PLAN
What does a business plan look like? There is no standard
document that fits all projects.
Make the plan fit the project, not the reverse. Bear in mind that

4. different projects call for different amounts of detail.
Essentially, a plan should be complete enough to make a
decision about whether to go forward with the project, and yet
as concise and easy to read as possible. In writing a plan, try to
aim its contents at the intended audience, be it a supervisor,
board members, bankers, venture capitalists, etc. It may be
necessary to have different versions of the plan prepared for
different readers. It is quite important that we try to assess their
knowledge of our project. The document should meet the
reader’s information needs. The goal is not to show how much
we know, but rather to provide the information the reader needs
to know. For example, providing a three-page background on
our organization may be useful to a venture capitalist, but is
just excess baggage if we are asking our own CEO to review
and approve the plan.
Maintain a consistent voice and tense throughout the document.
Don’t shift between the third person (the organization) and the
first person (I or we) and between the present (the clinics see
1,000 clients each year) and the future (the clinics will see
1,000 clients each year). Although each business plan document
will be unique, there are some elements that are typically
included. The plan should have a cover memo. Next comes a
title page, followed by a table of contents, executive summary,
description of the initiative, proposed organizational structure,
market analysis and marketing plan, financial/resource
requirement plan, financial feasibility analysis, implementation
and operating plan, key performance measures, and summary of
strengths and weaknesses, including risks. If we need to say
more—add a topic!
Cover Memo
This memo, sometimes in the form of a letter, should be a brief
explanation of what the business plan document is and the
specific action that is requested. That action will vary from a
request for funding to simply a request for permission to move

5. forward with implementation.
Title Page
The body of the plan should have a title page. This may seem
pretty obvious, but it is a simple element that is often forgotten.
Table of Contents
A table of contents should be provided next. This table should
provide page numbers for easy reference. Many readers will
choose to skip around, and this table should help keep them
from getting frustrated.
Executive Summary
Next comes a brief executive summary. Depending on how
extensive a project is being proposed, this summary may range
anywhere from one to three pages. It should not be longer. The
summary is written last. Everything else in the plan should be
completed before the summary is written. It should give the
reader an overview of the entire project.
It is critical to make your points quickly and clearly in this
summary. Pique the readers’ interest, or they may not go any
further. Start quickly, with no more than one or two sentences
describing the project, and immediately follow with the
financial benefit. If profits are expected, tell the reader right
away.
Then summarize all key points and critical numbers from the
document. Provide the essence of why the project will succeed.
Establish the approach to be taken, the timing, the management
and structure of the project, the costs, revenues, and financial
viability.
Finally, be clear about what you want from the reader. If you
grab the readers’ attention, they will move into the document to

6. get the details.
Description of the Initiative
The next section should provide a description of the initiative in
some detail. The first sentence should define the business
concept. The rest of that paragraph should explain the project’s
importance. The remainder of the section can lay out the
proposed venture in somewhat more detail, giving the project’s
history, current status, and other information.
Try to explain why this is different from what others are already
doing, and why it isn’t already being done by someone else.
Organizational Structure
Management and organizational structure may be critical to a
venture’s success. The document must clearly explain who will
manage both the initial implementation and the ongoing project
once it is up and running. Brief bios should be provided for
each member of the project management team.
It would be nice to be able to identify each member of the
management team, but it is not uncommon for there to be
positions listed as “to be announced” in the early stages of
planning. Realize, however, that this weakens the plan. You
must convince the reader that the management team is capable
and can make the plan succeed. If there are too many gaps in
the management team, it will erode the reader’s confidence.
Market Analysis
The greatest product or service will not be a financial success if
no one is interested in buying it. Market analysis must be
conducted to assure that there is, in fact, some demand for the
product or service. We must also know if the existing or

7. potential competition will make it too difficult to gain adequate
market share. The business plan should identify the target
market and its scope (local, regional, national, or worldwide).
Will potential customers pay the price we want to charge? How
do we know? Is there competition now? If yes, who? What does
their company look like—what products or services do they
offer? Where? When? What quality? If there isn’t any current
competition for the product or service, why isn’t there? Will
competition arise after others see our successful venture? What
are our strengths and weaknesses relative to competitors? Can
the market bear both companies, or will we have to force them
out of the business in order to succeed? How likely are we to be
able to do that?
Marketing Plan
Assuming that our market research indicates that there is a
potential market for our product at the price we want to charge,
how will we gain our desired market share? We will need to
inform customers of the availability of our product or service.
How do we intend to do that? Will we advertise on the radio, on
television, or in newspapers? Will we put flyers on car
windshields? Once we let customers know about us, how will
we motivate them to buy from us? It is wishful thinking to
assume that “if we will build it, they will come.” A proactive
marketing plan is essential.
Financial/Resource Requirement Plan
The business plan should identify all resources needed for the
start-up of the venture, as well as the expected revenues and
expenses related to the project. In some cases this may not be
very difficult. For example, if the proposal is to replace an
existing facility or expand capacity of a successful activity, we
may have excellent historical information to use as a guide.
In many cases, however, the project is new, and the financial

8. estimates are more difficult to make. The manager needs to be
careful to find out as much as possible about the resources that
are likely to be needed and their cost. Any assumptions made
should be listed explicitly. As people read the plan, they can
add their insights as to the likely accuracy of those
assumptions, and help make refinements that will shape a more
accurate plan. The plan should include a contingency fund. This
represents an extra amount of money that will be raised in
advance and will be available to meet unexpected needs during
the implementation and early stages of operation.
Financial Feasibility Analysis
A key element of most business plans is the determination of
whether the proposed venture is expected to be financially
feasible. Usually this requires forecasts of both the future
profits and cash flows of the venture.
Forecasting is as much art as science. If possible, before using
any method, test its forecasting accuracy over time. Look at
past periods, apply the technique retrospectively, and see how
well it would have predicted what we now know actually
happened. Consider seasonal factors. If possible, look at
industry data or comparable ventures. Forecasts used for
financial feasibility are largely based on the marketing analyses
and implementation plans. The manager must exercise thought
and judgment to make the forecast as accurate as possible.
Financial feasibility analysis is often done with a very rough
first pass, and then revised over and over as more information is
incorporated. Doing all of the analysis on a computer
spreadsheet program such as Excel is highly recommended.
Anticipating the revenues and expenses will be critical to the
financial feasibility analysis. Revenue forecasts require that we
anticipate both demand and prices. Discounts that will be
offered and a likely rate of bad debts must be considered.

9. Growth rates from month to month must also be factored in as
new ventures rarely reach a steady state of sales right from the
start. Revenue projections must also consider how long the
business will take to get organized before it can begin to see
sales. Delays in collecting payments from customers must also
be anticipated.
The business plan must document the expected start-up costs,
capital equipment needs, and ongoing operating costs. Managers
must be careful to include both direct production costs and also
indirect costs such as marketing and administration. This
information should be fairly detailed. For example, the capital
costs should include the amount and cost of equipment and
facilities, location, timing of acquisition, and estimated useful
life.
Focus on Cash Flow
Profits compare revenues and expenses. Do we sell the product
or service for more than it costs us to provide it? If so, then we
earn a profit. However, in a world in which we often have to
buy and pay for supplies, buildings, and equipment well in
advance of when our customers ultimately pay us for the goods
and services that they buy from us, cash flow is as critical as
profits. It is possible for a profitable venture to go out of
business because it runs out of cash. In fact, the more
successful the new venture is, the more likely it is to fail
because of the growing needs for cash investment as expansion
takes place.
Therefore, the business plan must 1) anticipate how long it will
take the organization to achieve profitability, and 2) estimate
how long it will take until it achieves a level of positive cash
flow.
Pro Forma Financial Statements
Most business plans include a set of pro forma income and cash

10. flow statements. Pro forma statements are financial statements
that provide projections or forecasts of the future. Generally the
business plan will include three years of projections, although
five years of pro formas are sometimes provided. Income or
cash flow statements that only project each year as a whole
don’t show the tremendous variability in resource needs and in
organizational results within each year. Therefore, pro forma
statements often show each month, or at least each quarter, for
the first year or two, and sometimes for three to five years.
If a venture is not projected to achieve a positive cash flow
position within the first three years, it is unlikely to gain much
support from venture capitalists or internal managers who have
to make funding decisions. There is a great deal of uncertainty
in the world, and it turns out that managers are better at
predicting the things that might go right than they are at
predicting all of the possible things that might go wrong. Given
the unexpected, it is risky to commit to a project that will
require cash subsidy far into the future, unless the potential
rewards are truly lucrative.
Return on Investment Analysis
The pro forma income statements must also show that the
venture will begin to be profitable within a reasonable period of
time. But how much profitability is necessary?
Suppose that Doc in a Box Clinics (DBC) puts up $10 million
for the construction of new stress/anxiety reduction clinics
around the country. Assume that the pro formas show that by
the second year the clinics start to turn a profit, and by the third
year they become self sufficient from a cash flow basis. Is that
enough to warrant going ahead? No.
The two main elements that we have not yet considered are the
rate of return on the investment and the element of risk. DBC is
contemplating an investment of at least the $10 million to
construct the new clinics. That money is spent before the first

11. patient is seen, but the profits earned on providing care will
occur in the future. Collection of the revenues earned will occur
even farther in the future. The business plan must assure DBC
that it will eventually recover its up-front cash investment to
build the clinics, as well as the cash subsidy to operate the
clinics for the first two years, plus a return on that investment,
with an adequate reward for having taken the risk that
everything might go wrong and all of the investment might be
lost..
Break-Even Analysis
Another tool often employed to evaluate a new project’s
potential for profitability is break-even analysis. This technique
evaluates the volume necessary for a venture to at least break
even. At higher volumes the project will be profitable and at
lower volumes losses would be incurred. The reason for this is
that virtually all projects have some costs that do not vary as
the activity level varies.
For example, once we acquire a machine, we can use it to make
a few units each year, or many units. If the annual depreciation
on the machine is $10,000 and we use it to make
500 units a year, part of the cost of each unit is a $20 pro rata
share for using the equipment ($10,000 ÷ 500 units = $20). If
the same equipment is used to make 1,000 units a year, the cost
for the equipment is only $10 per unit. The higher the volume
(within the capacity of the machine), the lower the cost per unit.
Therefore we become more profitable as volume increases.
“What-If” Analysis
Finally, a “what-if” sensitivity analysis should be undertaken.
This analysis assesses what would happen if the plan’s
assumptions turn out to be incorrect. For example, what if the
volume of sales is 10 percent below expectations? How about 20

12. percent? What if operating costs are 15 percent higher than
planned? If such events mean the project would fail, the reader
must know that. The size of the planned contingency fund may
be adjusted accordingly.
The financial feasibility analysis can become quite lengthy. It is
usually best to summarize all of the financial feasibility
information in the body of the business plan, and put most of
the detailed calculations, statements, and tables into an
appendix.
Implementation/Operating Plan
The implementation plan needs to address the who, what, where,
when, and how questions: Who will do the implementation?
Exactly what will they do? Where will they do it? When? How?
The plan needs to have timetables for hiring various personnel,
buying and constructing facilities, and purchasing equipment
and supplies, and a complete schedule of the start-up resources
that will be needed. In many cases the plan needs to address
coordination issues relative to the existing organization.
Clearly the activities that have to take place first can be
predicted with a greater degree of accuracy and described in
more detail. However, an overall plan is necessary. The plan
should include the likely impact of delays. It should distinguish
among resources needed right away, those not needed until
operations begin, and those not needed until operations are well
under way. It is particularly helpful to use a timeline in
developing the plan, showing the various activities that will
occur at different points in the timeline.
The operations portion of the plan must be as specific as
possible about how this organization will operate. It must
convince the reader that you have anticipated all of the elements
of running the business on an on-going basis.

13. Key Performance Measures
The financial profitability of the venture, discussed earlier, is
one of the most important performance measures. However, for
most ventures it is not the only key measure. The plan should
consider other outcome measures as well. Targets for sales and
market share are often critical. Quality measures of the product
or service are essential. Early achievement of customer
satisfaction targets may also be a key to long-term success of
the venture.
Summary of Strengths and Weaknesses, Including Risks
It is important to itemize not only the positive elements of the
venture, but also the business risks and strategies for offsetting
them. What might go wrong? What are the implications if those
things do go wrong? What can we do to try to avoid those
problems? What can we do to minimize the impact if they do
occur anyway?
Most implementation plans at some point indicate what will
happen “if everything goes according to plan.” However, it is
rare that at the time operations finally commence, anyone says,
“Well, everything went according to plan.” Unexpected things
always seem to happen. What things? Well, if we could say,
then they wouldn’t be unexpected! But we must still make our
best attempt to say what will happen to the proposed venture if
everything does not go according to plan.
How a Business Plan Is Read
Most readers review the executive summary first. After that, the
reader will often jump to an area of concern or an area that the
reader has the most familiarity with. If the reader has great
expertise in marketing, then the marketing plan may be
reviewed first. If the reader concludes the plan is naive with
respect to market analysis or the marketing plan, that may be as
far as he or she goes. Another reader might believe that,

14. ultimately, if the management team is inadequate no idea can
succeed. So the first section reviewed might be the
organizational structure and management team. Others will
jump to the financial statements first.
The writer of a business plan has relatively little control over
the way that the reader moves through the document. Therefore
the writer should just ensure that, as the readers ask the
following questions, there are satisfactory answers in the plan:
• Does the business concept make sense? Can and will the
market support the business?
• Can the management team do the job?
• Are the financial projections realistic?
• Has management realistically assessed the risk in the venture?
• Do the economics justify the investment?
If the document cannot provide satisfactory answers to these
questions, then the person preparing the plan should be the first
to argue that it doesn’t pay to proceed. If the answers to these
questions indicate that the project is a good one, then the
document should be designed to convince someone to provide
the needed approvals and resources.
A Successful Business Plan
Many business proposals are never implemented. How many
times is that because the idea just wasn’t any good, and how
often because the plan document was not compelling enough?
What does a successful business plan do that an unsuccessful
one does not do?
First, a successful plan gets to the point quickly. Second, it
brings together all data needed to make a decision in one
document. However, it does not overwhelm the reader with
detail. Most of the technical details can be relegated to
appendices and supplements. The main document need not be
more than twenty to thirty pages long. Third, it clearly defines

15. the reason for the proposal—the business strategy. Fourth, it
evaluates the strengths and weaknesses of the proposed venture
or project. Fifth, it includes satisfactory consideration of
implementation, operations, marketing, and financial issues.
Sixth and finally, it makes a strong case that the venture is
likely to be successful if implemented.
The Business Plan will be about health organization thinking
about buying MRI.