Tax Tip Thursday

Opening a Business?

This show is directed to Business owners or Potential Business Owners. Specifically, we are going to talk about Business Plans and why they are so important!

Starting a business is an exciting journey, full of opportunities and challenges.

What is a Business Plan?

A business plan is more than just a document; it’s your blueprint for building and growing your business. It outlines your goals, strategies, and the steps you need to take to achieve them. A strong business plan not only guides your decisions but also communicates your vision to potential investors, partners, and employees.

A business plan explains how a company brings in money and is run day-to-day. There isn’t a single standard format, but most plans cover these four main areas:

  1. Company Profile
  2. Sales and Marketing
  3. Operations
  4. Financials

1. Company Profile

This section gives an overview of your current company or business idea. It typically includes:

  • A business description — Briefly describe your company, what it does and where it’s located.
  • Products and services — Provide a detailed description of your product or service. This should include unique features, how much it costs and how it’s delivered.
  • Value proposition — Explain the main benefit that keeps your customers coming back. You may need to validate this through a customer survey or focus group.
  • Ownership and management team and key employees — Outline the education, skills, training, knowledge and experience you and your team bring to the company to achieve its goals.
  • Company history — Explain the development stage of your company or business idea. Include how much time, effort and resources you’ve invested in the business so far
  • Legal Structure — Give details on your legal structure, why it’s the right one for your business and any potential liability issues.
  • Regulatory and insurance issues — List any needed permits, licenses or the like. Also explain any insurance needs, costs and providers.
  • Your business goals — Briefly list measurable short- and medium-term goals for the business and when you want to achieve them and HOW you will achieve them is meat of this document.
    • Examples: $50,000 in sales by July 31; or launch website by October 6.
  • Market research — Outline your market, industry, competition and trends. This important section consists of a lot of elements and is often broken out into a separate section of its own in many business plans. It should cover:
    • A market overview
    • Target market
    • Competitors
    • SWOT analysis—Strengths and weaknesses of each competitor; opportunities for your business that you can do better or differently; and threats that each of the competitors could pose to you if they change something. Also do a SWOT analysis on your own company.
  • Executive summary — The executive summary is a very brief, high-level summary of the business plan. It appears in many business plan templates, but Fryling says it’s optional. He suggests that companies leave it out unless the target audience specifically requires it. If you do include one, he recommends writing the executive summary last. Here is where you can also include your business model canvas, which is a one-page visualization of how your business works.

2. Sales and Marketing

Sales and Marketing Plan

Outline your activities to generate sales. Include an action plan that lists your top three marketing activities and the sales results you foresee. For each activity, include details such as:

  • What you will do
  • How often
  • Cost or time involved
  • Expected results
  • What campaign metrics you’ll track

Learn more about the basics of preparing a marketing plan.

Pricing Strategy

List your prices, what the competitors in your SWOT analysis charge, how you’re positioned (e.g. bargain-basement, industry-standard, premium) and how you came up with your prices. Explain your strategy behind this type of pricing.

Sales Forecast, Assumptions, and Rationale

Explain how you came up with the first three or four months of sales projections in your financial forecast.

It is really important to explain the numbers in this section. A lot of people think their product is so good it’s going to sell itself. That may or may not be true, but you do not want to bank on it.

As an example. A company that projects 15 sales in April. It has averaged 15 sales a month for the past six months and already has 10 committed orders with a deposit for April. The company also has a record of strong sales in recent years. That sounds totally conservative and achievable. The reader now understands how you’ve put those sales projection numbers together and hopefully feels that they are a conservative estimate.

But it’s another story if the entrepreneur has no industry experience and projects 15 sales simply because they will have a good website and offer great service.

3. Operations

  • Location — Explain your company’s location and why it’s right for your business. Some businesses may need to give more information than others.
  • Assets and production — A consultant could simply explain their quoting and work processes. Meanwhile, a manufacturer should explain all the steps of their production from materials to manufacturing to shipping.
  • Suppliers — Where they’re located, turnaround time, and, if they’re overseas, any relevant trade agreements and border issues.
  • HR and organizational structure
  • Risk assessment

4. Financials

Include a cash flow forecast, usually broken down on a monthly basis and presented as a spreadsheet. Also add your financial statements (balance sheet, income statement, cash flow statement and statement of retained earnings). And if you’re a new business, list start-up costs.

The cash flow forecast is especially important. It is the bread and butter of a start up. If you do not have the cash flow, you will never survive.

The real story happens in the financials. In the written part, every section mainly serves to explain and justify those numbers. A big part of the process is to complete the numbers at the same time as writing the plan so they are aligned with each other. It’s also not a bad idea to start with the numbers and then complete the written part.

Three Common Mistakes to Avoid

  1. Being overly ambitious
  2. Masking financial difficulties
  3. Providing insufficient detail

How Long Should it Be?

There’s no standard length for a business plan. It’s more about the quality than the quantity. Many people can write a lot and say very little.

You can have a business plan that has just a paragraph and point-form bullets for each element and a few charts that is excellent. But then others have a 100-page business plan that was absolutely ineffective because they focus on writing a story and making it sound good, but there is no substance to it.

We Can Help!

Make an appointment with The Mad Accountant today! We can help you look over your business plan.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.