How to Write a Business Plan
Posted Apr 28, 2011, Published 1998-11-01
A well-thought-out business plan provides a roadmap for your business. It clarifies your goals, focuses your energy, provides direction and helps you gauge your progress.
For a start-up operation, the business plan is an assessment tool. As you work through all the points of the plan, you will have to continually reaffirm the viability of your business strategies. To get a loan or attract investors, you will need to present a comprehensive picture of your business, the management team, why it will succeed and how you intend to repay the loan.
For the established laboratory owner, developing a business plan forces you to think through every aspect of your business and to make sure that all elements of the business are working together.
There is no magic formula for writing a business plan. Following is a checklist of key details you should consider including. Not all of the points will apply to you, especially if you are a very small laboratory, but it's important to carefully think about each point as you write your plan.
The business: Describe the business, including history, legal structure, major products or services, the management team and personnel. Explain your laboratory's goals for sales, new product development and growth.
Products and services: Describe all the products and services the laboratory offers and explain opportunities for improving product/service lines. If you have any patents, trademarks or proprietary features, these should be included. You must know your actual costs of doing business so you'll need to determine the break-even point and profit margin for each product/service. The break-even point is the level of sales that covers the fixed and variable costs of providing your product or service. Your fixed expenses (rent, utilities, insurance, etc.) remain constant regardless of your sales. Your variable expenses (cost of goods, sales, commissions, etc.) vary as sales increase or decrease.
Industry: Describe the size, maturity and competitive nature of the dental laboratory industry. What are the barriers to entry and growth? How will economic swings affect the industry? Detail the overall financial position and performance of the industry and the role of government regulations in it.
Location: Consider the importance of location to your business in terms of customer access, distribution of goods and zoning.
Marketing: To whom are you going to sell and how are you going to get them to buy? Who are your competitors, what is their market share and how will your laboratory fit into the market? You'll need to clearly explain your marketing strategy, who will be responsible for sales, marketing and sales support, anticipated budget and how you'll differentiate your product from that of your competitors. Detail your pricing schedule and credit policies.
Operation: Outline all the activities of the business, including the hours of operation, inventory, equipment maintenance and vendors you plan to use.
Management and organization: Prepare an organizational chart showing the personal history of the principals including their age, educational background, industry experience, business affiliations, role in daily operations and the percent interest or stock that each one holds. Is your company a sole proprietorship, partnership or corporation and do you plan on changing the organizational structure in the future? Explain your succession plan in case you lose key personnel and describe the professional resources such as attorneys and accountants that you'll be using to help run your laboratory.
Personnel: Describe current staff and expected turnover. If you use both permanent employees as well as independent contractors, explain why this is necessary. You should predict personnel needs one to three years into the future including the specific skills that will be needed. Outline your compensation package including salary, insurance, opportunities for advancement, profit sharing and policies regarding performance evaluations, hiring and firing.
Financing: Forecast the total funds your laboratory will need for the next three years. Explain how much financing you'll be requesting from lending institutions or investors, how you'll be using the borrowed funds and the collateral that you can offer.
If you are seeking debt financing, describe the loan amount, interest rate and repayment schedule. If you want equity financing, describe the percentage of the company that will be given up, the proposed return on investment and the anticipated method of repaying the investor, for example, buy back or public offering.
Financial statements reflect the laboratory's historical (if applicable) and future performance, profitability and cash flow. Describe the methods of financial reporting you'll be using.
If you are a start-up laboratory, you'll need to provide profit and loss projections showing anticipated earnings and expenses, usually on a monthly basis, projected over one year as well as cash flow projections showing only cash earnings and cash expenses.
At its most basic, cash flow is the cycle of turning sales into cash that in turn pays for the cost of doing business and, hopefully, returns profit. Cash flow is not the same as profit; a laboratory with good cash flow may not show a profit while another lab may show a profit and be in bankruptcy because it has insufficient cash to pay its debts.
To do a cash flow projection, you must understand the movement of cash through a business operation. You need to know starting cash payments during the period (usually one month) and cash receipts. The difference between starting and ending cash represents the change in cash flow. If payments during the period exceed receipts (cash receipts not credit sales) then you have less working capital. Conversely, if receipts exceed payments, then your working capital has increased.
If you are a veteran business owner, you'll need to include your balance sheet showing the assets and liabilities of your company and profit and loss statement showing the earnings and expenses of your company over a specific period, usually one year.
Grasping the terms and concepts used for financial projections and accounting systems can be very confusing, especially to a novice owner. It is advisable to consult one of the many books about small business accounting systems, cash flow projections and bookkeeping.
Not all parts of the plan are created equal
Your business plan doesn't have to be lengthy. Although all points of the business plan deserve consideration, not all parts are created equal. Nothing is more important than knowing your market. The most innovative product or idea in the world won't make money if its inventor can't find customers for it. The biggest part of your planning efforts should go into market analysis.
Remember that cash—not profit—pays bills; therefore, cash flow projections are another critical element of your business plan. It's also extremely important to accurately identify your costs, know the sales level needed to break even and be reasonably sure of meeting or exceeding that sales figure to ensure your laboratory's success.
How to obtain financing for your business
Because lenders and investors prefer to finance businesses with a proven track record, more than 80% of new entrepreneurs start their businesses without any commercial loans or debt financing. If you're just starting out and need $25,000 to set-up shop, besides your own personal savings here are some options:
The Small Business Administration's Low Doc Program through banks. Banks are hesitant to make small (under $50,000) commercial loans because they are not particularly cost-effective. This program for loans under $100,000 is addressing this problem by reducing the up-front costs lenders must absorb.
Personal bank credit including credit cards and personal lines of credit.
- Mortgage loans, home equity line of credit.
- State, city or county programs.
- Economic or community development departments.
- Private, non-profit groups that make loans to certain ethnic groups.
If you are applying for a bank loan, you'll need to obtain a loan application and supply the following documentation:
- Established laboratories will need to provide a current profit and loss statement and balance sheet. Start-up labs will need to create a proforma statement offering realistic projected cash flow and profit and loss projections for one year, including a monthly breakdown.
- A current personal financial statement of the owner, partners or stockholders owning 20% or more of the corporate stock.
- Collateral with an estimate of current market value and liens against the collateral.
- A business plan.
- A schedule of business debt, aging of accounts receivable and accounts payable.
- Personal and business tax returns for the past three years.
- If property is to be leased, a copy of the lease.
- Any contracts or agreements pertinent to the applicant.
© 2015 LMT Communications, Inc. · Articles may not be reprinted without the permission of LMT
Nothing has yet been posted here.