Everybody’s business: Business plan should answer six basic questions

Stock photo: Business Planning

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Rudyard Kipling said, “I had six honest serving men. They taught me all I knew. Their names were: Where, What, When, Why, How and Who.”

When a business plan addresses these questions, it will ensure that attention is paid to the finest details. Taking the time to work through the process of writing a business plan will make for a smoother startup period and fewer unforeseen problems as the business becomes established. It will consist of narrative, financial projections and supporting documentation.

Many new businesses need operating funds and startup capital. A solid business plan provides a better chance of getting money from a lender. The lender will be better prepared to make an investment decision after a thorough review. A suggested outline for the narrative includes the following items for the What and the Where: Descriptions of the business; the products and services; the location; the market; and the competition. Provide an executive summary, résumé, and a statement of qualifications for the Who. Include the names of key employees and job descriptions.

The last part of the narrative could be entitled “The Strategic Plan.” It will explain the details of getting the business open; the sales and pricing strategy; proposed advertising and promotional plans; operating details; and steps needed to overcome any barriers to entry. Hint:  It’s OK to dream big here.  Essentially, this comprises the How. By now, the Why should be coming into focus.

The financial projections will detail the sources and uses of all funds, plus an income statement, cash flow statement, and balance sheet for the first three years. In order to get a lender’s positive response the borrower should be prepared to include twenty to thirty percent of the capital funding in the form of their own cash as a down payment or other acceptable assets. The income statement should illustrate a net profit within a reasonable period of time. The business should be able to generate sufficient cash flow to repay the loan and pay the owner after all other obligations are met.

Any lingering questions may be addressed by including pertinent supporting documentation. It may include quotes for insurance and equipment to be purchased. It could include diplomas, certificates of training, or membership affiliations. Any contracts or legal agreements relating to the business should also be included. Finally, personal income tax returns for the three previous years plus a personal financial statement may be requested by the lender.

Gordon Smith is a business specialist at the Small Business Development Center at Clovis Community College.