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A Sample Business Plan for a Small Business May Not Be the Best Way

You can find a sample business plan for a small business in all kinds of formats. There is a sample business plan for a small business where you basically fill in the blanks or you can have access to a sample business plan for a small business where you can pattern yours from it or you can develop a business plan that is centered on what you want for your dreams and your life.

I don’t know of better way than to let your business give you what you want for your lifestyle. Whether it’s a sample business plan for a small business or one where your business gives you a plan, it should tell you what is needed to take you where you want to go and when and how you can get there and it should be in clear simple terms, supported with all the specifics.

So using a sample business plan for a small business is just one of many ways to make a business plan but frankly I think designing one that will have your business give you exactly what you want is by far the best way.

So, why not start out with what you would like to have in life for you and your family? Then develop a business plan that could show you exactly what your business would need to do to give you that life style. If you think about it, there is no other way where you have more control over what you want in life than letting your own business do it for you. If you work for someone else, you’re sure not going to have as much control over your future.

So how would you go about making a plan like this? Well if you know a fair amount about business, you can. It will take some special calculations and some work but if you know how to put together a Profit & Loss Statement, you can probably do it.

You would first do a P&L for the present year for your existing business and the first year and as many years after as you would like to have your plan cover. Your existing business financials will be the foundation for building yourself a business plan for as many years out as you want. This data will tell you a number of things but first if you want to build your plan around what you want in life, you would need to decide some things about your life:

1. You would need to decide how much income you would like to have for yourself for each of the years you plan for.
2. You would need to determine what kind of profit margin you would want from your business for each of the years.
3. And by combining these 2 things into a P&L format you can develop a financial business plan that can extend as for into the future as you would like.
4. The first thing it will show you is how much sales you would need each year to give you the income and profit you would like. Once you see the sales needed, if you know your business well enough, you should be able to estimate those additional expenses needed to overcome capacity constraints that will occur as your business grows.

With this information you can actually predict not only what your sales will be, but you can see how much your fixed and variable expenses will be, what your labor cost will be, your material cost, and your profit.

1. So let’s first look at what exactly are fixed expenses? They are exactly what they say they are; they are fixed. This simply means these are expenses that are ongoing whether you have a lot of sales or “0″ sales. They are expenses like utilities, taxes, rent, salaries other than the wages used in the making of the actual product or doing a service, business fees, telephone, etc. See how these expenses would continue on even if you have 0 sales? Any expenses that fall into this category are fixed expenses. Far too many small business owners never divide their expenses into fixed and variable. As a matter of fact, if you could have a business that had “0″ fixed expenses; this would be the best of all worlds, why? If you had “0″ sales, you would have “0″ expenses. So the closer you could get to this the better you would be.

2. Variable expenses are those expenses that track directly with sales. If sales stop they stop. These are expenses like supplies used to support in the making of your product or doing your service. Such things as shipping cost for raw materials for your product or service. If you have no sales then you’re not going to be purchasing materials so your shipping cost for those materials will stop as well. As an example, if you have a lawn mowing business and there are no lawns to mow, then you wouldn’t be buying gasoline to travel to your lawn mowing site. These kinds of things are variable expenses. If you’re producing a product, it would include supplies used to produce that product like sand paper, glue, finishing materials, cutting tools, etc.

3. Labor and material costs are also directly proportionate to sales. These are things that go directly into the making of the product or into doing the service.

a. Labor cost is the actual direct labor used in the making of product or doing the service. The cost would also include all the fringe benefits like social security, payroll taxes, vacation pay, holidays, sick pay days, etc.
b. Material costs are all the materials used in the making of product or in doing the service. In the lawn mower service as an example it would be the gasoline used in the mower and any other materials used directly in that service. For producing a product it would be all the materials used in the product that is sent to the customer including all the packaging materials.

Average Selling Price

Now when you calculate your average selling price which is your cost of sales (material + labor) divided by (1-gross profit), you can determine how many customers you would need and then come up with what you think your conversion rate would be for converting leads to customers, you can determine how many leads you would need. Then from this and with the aid of the U.S. Census Bureau and some basic research on your own you can actually have a pretty decent idea of what size your market is and is going to be in the future so you can see if it will support your business plan or not.

So if you can put this all together, you can have a complete business operating plan that would show you exactly what your business would need to do to give you the income and profit you would like to have and a rough idea whether your market would support it or not. All you would have left to do would be to figure out how to make it all happen.

It’s like planning backwards.

1. Determine what you want in life
2. Figure out what your business would need to do to give you that life.
3. Figure out how long it would take you to reach it.
4. Figure out how big of a market it would take each of the years you’re planning for.
5. Then see if that market is big enough.

Isn’t this a much better way to go about planning your business? Shouldn’t your business be designed to give you want you want instead of you working yourself to death just hoping for the best?

So how would you go about calculating all this?

There is quite a bit of calculations and you should know a little about business principles but it isn’t that complicated. So first let’s look at figuring out your future needed sales with this formula:

Projected sales = fixed expenses divided by (1-(var exp % of existing sales + mat cost % of existing sales + lab cost % of existing sales + desired net prof %))

So, let’s say you existing sales is $850,000 annually, your fixed expenses are $275,000, variable expenses is $55,000 or 6.5% of the $850,000, material cost is $236,000 or 27.8%, labor cost is $109,000 or 12.8%, and your existing profit margin is $175,000 or 20.6%.

Now let’s say next year you want to have a profit margin of 25% so what would your sales need to be to give you that profit margin? Now you might think you would simply tack on 4.4% more to sales (25% – 20.6%) and you would have it. Well not quiet. it doesn’t work that way because you are going to have the additional variable expenses, material cost, and labor cost too. Remember, the more sales the more each of these expenses and cost will be.

So here is how you would do it:

Projected sales = fixed exp ($275,000) divided by 1-(6.5% + 27.8% + 12.8% + 25% (your new profit margin) = $896,057 (new sales)

You can do this for as many years out as you want. Obviously this is based on your first year’s fixed expenses remaining constant and no consideration of depreciation, inflation, or taxes.

But most likely you would need to increase your fixed expenses because you’re going to probably have more rent, utilities, or such as your business grows. So, you would simple put in your new fixed expense number in place of the existing one for each of the years you would be planning for.

So, you see if you decided you wanted a 35% profit margin at year 5 then you could see how much sales it would take to give you that.

Now it’s also important to know how many more customers you would need as well so you should always look at that unless you have another way of growing your sales other than with new customers.

Let’s say your average selling price for your service is $925.50 and you have one transaction per year per customer.

Using that first years sales example we used above, you would calculate it this way.

$896,057 divided by $925.50 = 968 customers needed for the year. Now if your average transactions per customer are more than 1, then you would need fewer customers. As an example, let’s say your average transaction per customers per year is 2.5 then 968 divided by 2.5 = 387 customers per year.

Now let’s say you estimate your conversation rate to be 3% of turning leads into paying customers with the advertising method you’re going to use, how many leads would need to contact to get 387 customers? Simply divide 387 by 3% and you get 12,909 leads you’re going to need to contact.

Then the question is; is your market going to be big enough to provide you with 12,909 leads for the next year and how many will you need each of the following years?

It may be easier than you think to figure this out. You would do some research and with the aid of the U.S. Census Bureau you can roughly determine whether your plan can be supported by your market or not.

So what do you think? Is it better to build a business plan around what you want in life then see how your business can maybe give you that or is it better to use a sample business plan for a small business where you are probably guessing?

I’d love to help you some more. Please go to http://www.StrategicBusinessSolutionsLLC.com and see what might be available.

Building a Better Business Plan to Franchise Your Business

In building a solid franchise strategy, I first recommend “packaging” the business, maybe first in your mind, then of course on paper, with technology, processes and documentation, but first, decide what is this model that the franchisee will be replicating? Many times an entrepreneur handles more aspects in the corporate business than what a franchisee will be tasked to do upon opening which can be a good thing – keeping things simple in franchising has never been proven to be a bad thing. Franchisees like, appreciate and typically thrive in simple, structured environments with fewer variables left open. Maybe you decide to shorten the menu… possibly decrease the amount of services offered or it could be that the franchisee won’t be operating a production facility, only the retail portion of your business. Regardless, the franchise business plan should define this model clearly and accurately in order to understand the product being sold as the franchise program takes shape.

The next stages of franchise strategic planning should revolve around research. This research should be strategic in nature and focus on the franchise market, not the consumer market. We aren’t interested in the product or service provided to your customer as much as we are the franchise comparison to similar franchise brands. Who offers a similar franchise model based in your industry? What success stories have their been in your industry throughout the franchise market? In most cases, there are examples of good, bad and ugly ways to approach the franchise market, we typically suggest replicating the good and avoiding the other two options. By coordinating FDD’s from competing brands, interviewing people in the industry, even visiting some competing franchise brand locations if possible, you will be able to formulate your strategic mission and understand the best path to success. Every franchise has a value proposition, it is important that you understand what your brand brings to the market and how you will effectively attract, sign and retain franchisees for your system.

As your franchise concept takes shape, you now should begin to lay the framework for the financials, fees and other relevant numbers to the expansion plan. Franchise fees should be determined by reviewing the costs associated with training, support, sales and marketing related to franchise management. A validated franchise fee should be able to be explained to a buyer and easily understood. You will fail if the impression is given that you picked numbers because you thought they sounded good, you approached the market with confidence and an understanding for what each franchisee gets out of the relationship and why the numbers add up to a strong value proposition. Royalties, the primary profit center for most franchise systems are absolutely critical to the success or failure of any franchise system, understand what the ongoing percentages mean to both the franchisee and franchisor in your model and confirm that the fee structure lends itself to a profitable and meaningful relationship between both entities. Advertising requirements should encompass national, regional, local and cooperative strategies and each need to be managed delicately in order to provide franchisees with a meaningful benchmark to spend on building the brand in their market. Because franchising is a business of scale, the magnitude of every decision you make related to your business, your model and your brand is increased significantly, one wrong move up front replicated many times through franchisees could be disastrous for your brand and business.

Then it’s time to begin to understand markets. The franchise business plan should delineate which markets make the most sense for your company. Understand your consumer demographics. Know your territory analytics and have a good plan in place for how to position your franchised units. Territory disputes lead the list in categories for disgruntled franchise relations. Spend the time and make the investment necessary to fully grasp how and where to place your franchisees in order to avoid cannibalization and under utilization of markets.

A Franchise business plan should lead the way for a franchise expansion model. The vision, mission, competitive landscape and clear directives related to how to accomplish your growth goals should be explained, documented and most importantly validated as to why they are attainable and how you have come to these conclusions.

How to Structure a Business Plan For Your Small Business – Don’t Wait, Just Do It!

Three quarters of all small businesses fail within the first two or three years of opening.

Business owners who put together a business plan, and structure planning and strategizing as a formal function of their regular business activities, are more likely to succeed and avoid failure.

Even if they do not fail, they will make more profits than if they did not have a plan.

What makes small businesses very vulnerable is the fact they do not have the resources to take them through tough times or bad mistakes as larger companies do.

It is even more critical for a small business to understand their market and plan their limited resources accordingly to react quickly to changes, and to avoid critical business errors that could fold their company in a heart beat.

These statements alone should encourage every small business owner to learn and master the business planning process.

Business Planning is not just for borrowing money

The only time that many owners/managers produce a plan (even successful businesses) is when they go to their bank or investors to ask for money.

After the loan requirements have been satisfied, the plan usually gets filed away in a cabinet and never reviewed again until the next time they need to go for a loan.

Producing a business plan is not a one time event that is performed to satisfy a third party requirement. It is a function that needs to be designed into the regular activities of running your business to make it more successful.

Business planning is a function that helps struggling businesses to survive and good businesses to become even better.

Business Planning Elements

A formal business plan has several common elements regardless of the nature of your business.

The faster you learn and master these elements, the faster you will gain control of your business and direct it towards higher profitability.

I have included a brief outline of the necessary elements you need to include in your plan if it is to be reviewed by a third party lender or investor.

However, you should construct your plan in a manner that not only cover the detail for potential investors, but more importantly it needs to be constructed in a manner that it becomes a critical tool that provides practical guidance for your company.

1. Executive Summary

Your executive summary touches briefly on every element of your business plan. It is more than just an introduction, it is a shorter version of your entire plan.

If you are presenting your plan to a third party, the people reading your summary should be able to understand your business and your plan without reading any further.

2. Company Overview

This element describes your business.

Here you outline:

- The nature of your business – The key factors of your industry – Your customers – The product and service value streams you wish to develop

As you construct this element you also need to state:

- A Value Statement. Which defines your set of beliefs and principles that guide the activities of your business – Vision Statement. Which defines what you want your company to become – Mission Statement. Which defines your company’s purpose, what it is and what does – Goals and Objectives. List your goals for the period and the objectives that you have set to achieve these goals

3. Business Environment

Here you want to describe the nature of the business climate in which you operate. You should outline:

- The direction in which your market is moving – What your customers are looking for – The business conditions that are out of your control – The nature of your competition – The opportunities you see – The threats you see to your business – A description of how you plan to be successful

4. Company Description

In this section you want to cover what your company has to offer to the market place.

Describe the strengths of your company and how these strengths give your company an edge over your competitors examining the following areas:

- Management and organization structure – Product and service value streams – New technologies adopted by your business – Operations capabilities – Marketing capabilities – Financial and personnel resources

5. Company Strategy

This element describes the strategies your company plans to adopt for major parts of your business that will include:

- Marketing strategy to promote and expand you business – New product and service development strategy – Operations strategy for improved speed, quality and cost reduction – Employee development strategy to meet new business needs – Financial strategies to prepare your business for new opportunities

You should describe how your business strategies will impact the future outcome of your business and you should also present alternative courses of action should the business climate change.

6. Financial Overview

The company financial review consists of both financial statements describing the “current state” and your “future state” financial predictions that are backed by the previous strategies and assumptions that you made in your plan.

The basic financial statements for the “current state” and “future state” are the same which include:

- Income Statements – Balance Sheets – Cash-flow Statements

The income statements should break down the financial numbers associated with each product or service value stream to make it clear where the income is generated and how it is being spent across your product and service lines.

The numbers for the future state are predictions that are based on what may happen. So, ensure that you link those predictions to your assumptions.

7. Tactical Plan

The tactical plan lays out how you intend to execute your business plan.

It should identify:

- Major activity steps – Who is responsible for which activities – The planned completion time frames to complete the plan – The resources you need

It should also identify how resources such as equipment, facilities, personnel and training are to be acquired if the current state does not satisfy the future state requirements.

You should include with your tactical plan:

- A brief description of the planning organizational structure – The frequency for reviewing – The execution process for addressing the activities of the plan – The measures necessary to ensure adequate feedback is available to monitor progress against planned goals and objectives.

How long should your plan be?

No more that 20 pages written in specific, but brief language.

Just Do It

Do not wait until the bank or some investor asks you to generate a business plan. Do it now with whatever data and information you have. It is easy to get bogged down in the details of constructing a business plan. Yes, your predictions and assumptions need to be accurate, but not to the extent that you are overwhelmed with “analysis paralysis” that prevents you from taking the actions necessary to get moving.

The accuracy of your business plan does not need to be absolutely perfect if you establish regular reviews of your plan against the current business environment. The more frequent those reviews the greater the accuracy of your plan will become with time as you make constant adjustments where they are necessary.

In order for your business plan to be successful, it should be a “living, dynamic” document that forms the direction for every activity performed by the employees within your organization. Organizations that go through an annual planning process, but then discard their plans in some cabinet until the following year are no better off than if they ran their business by “shoot from the hip” reactionary strategies. Your business plan will become more sophisticated, more accurate and generate improved results the more frequently you go through the planning process.

The very motions of performing the process will force you to ask yourself the important questions that govern your market and business.

New ideas will spring from these discussions and over time the process will become second nature and part of the “culture” of running your business.

Good luck,

Les