How to Write a Business Plan 8th Edition (Mike McKeever)

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8th edition

How to Write a

Business Plan

by Mike McKeever

EIGHTH Edition FEBRUARY 2007

Editor Richard Stim

Book Design Terri Hearsh

Proofreading Robert Wells

Index Ellen SHERRON

Printing Delta Printing Solutions, Inc.

McKeever, Mike P.

How to write a business plan / by Mike McKeever.-- 8th ed.

p. cm.

Includes index.

ISBN-13: 978-1-4133-0562-3 (alk. paper)

ISBN-10: 1-4133-0562-8 (alk. paper)

1. Business planning. 2. New business enterprises--Planning. 3. New business

enterprises--Finance. 4. Small business--Planning. 5. Small business--Finance. I.

Title.

HD30.28.M3839 2007

658.15'224—dc22 2006046797

Copyright © 1984, 1986, 1988, 1992, 1999, 2002, 2004, and 2007 by Mike P. McKeever.

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Dedication

This book is dedicated to the memory of my late grandmother, Elizabeth

Eudora Woodall Darby, whose influence I acknowledged only recently.

Acknowledgments

After more than a decade of working with many people, I am amazed at the

uniform spirit of goodwill and cooperation.

My first editor, Ralph “Jake” Warner, showed patience working with a first￾time author. My second editor, Lisa Goldoftas, challenged the grammar while

gracefully deferring to my knowledge about the subject.

Also at Nolo: Steve Elias designed many charts; Adam Stanhope educated

me about computers; Mark Stuhr tuned sections on computer-related

material; Stephanie Harolde worked her word processing wonders on the

manuscript; Terri Hearsh designed the book; Eddie Warner gave helpful

suggestions on online information; and many more folks at Nolo improved

the book greatly.

A special thanks to a number of generous individuals, each of whom

knows a great deal about starting and operating a small business. Peg

Moran, Terri Hearsh, Roger Pritchard, Jason Wallach, Harry Keller, Dan

Peters, Sharyn Simmons, Larry Healy, and finally, Hugh Codding and Leroy

Knibb of Codding Investments. For these and all my readers, clients, and

students who have shared their hopes, dreams, and problems with me

over the years, thank you for your help. The best parts are yours—all the

mistakes are mine. Many of your stories and suggestions appear here in

disguised form. I hope all the readers will profit from your wisdom and

generosity.

Mike P. McKeever

San Francisco, California

About the Author

Mike P. McKeever’s education, work experience, business ownership,

writing, and teaching careers give him a broad and unique perspective on

business planning. He has a BA in Economics from Whittier College and

a Master’s in Economics from the London (England) School of Economics,

and has done postgraduate work in financial analysis at the USC Business

School. Mike has taught classes at numerous community colleges in

entrepreneurship and small business management. He has published articles

on entrepreneurship for Dow Jones publications, the Sloan Publications

Business Journal, and numerous newspapers and periodicals.

Mike has successfully purchased, expanded, and sold a number of

businesses, including a manufacturing company, tune-up shop, gas

station, retail store, and commercial building. He has worked for a

variety of companies ranging from small groceries to multimillion-dollar

manufacturers. As an independent business broker, he assessed the

strengths and weaknesses of hundreds of companies. As senior financial

analyst for a Fortune 500 company, he wrote and analyzed nearly 500

business plans.

Currently, Mike runs a company, Business Plan Workshop, in which

this book features prominently. He conducts workshops for groups of

small business owners and takes each person through the actual steps of

completing a business plan for his or her individual business.

I How to Use This Book

What Kind of Plan Do You Need?.....................................................................................2

Getting Started.....................................................................................................................4

And a Few More Words ......................................................................................................5

1 Benefits of Writing a Business Plan

What Is a Business Plan?.....................................................................................................8

Why Write a Business Plan? ...............................................................................................8

Issues Beyond the Plan.....................................................................................................10

2 Do You Really Want to Own a Business?

Introduction........................................................................................................................14

Self-Evaluation Exercises ..................................................................................................15

How to Use the Self-Evaluation Lists .............................................................................19

Reality Check: Banker’s Analysis ....................................................................................19

3 Choosing the Right Business

Introduction........................................................................................................................24

Know Your Business ..........................................................................................................24

Be Sure You Like Your Business......................................................................................26

Describe Your Business ....................................................................................................26

Taste, Trends, and Technology: How Will the Future Affect Your Business? ..........32

Break-Even Analysis: Will Your Business Make Money?............................................36

What You Have Accomplished........................................................................................48

Table of Contents

4 Potential Sources of Money to Start or

Expand Your Small Business

Introduction........................................................................................................................53

Ways to Raise Money ........................................................................................................53

Common Money Sources to Start or Expand a Business ..........................................61

Additional Money Sources for an Existing Business ..................................................70

If No One Will Finance Your Business, Try Again.......................................................72

Secondary Sources of Financing for Start-Ups or Expansions.................................73

Conclusion ..........................................................................................................................76

5 Your Resume and Financial Statement

Introduction........................................................................................................................78

Draft Your Business Accomplishment Resume ...........................................................78

Draft Your Personal Financial Statement ......................................................................85

6 Your Profit and Loss Forecast

Introduction......................................................................................................................102

What Is a Profit and Loss Forecast?..............................................................................102

Determine Your Average Cost of Sales ......................................................................103

Complete Your Profit and Loss Forecast.................................................................... 106

Review Your Profit and Loss Forecast..........................................................................118

7 Your Cash Flow Forecast and Capital Spending Plan

Introduction......................................................................................................................122

Prepare Your Capital Spending Plan............................................................................123

Prepare Your Cash Flow Forecast.................................................................................125

Required Investment for Your Business......................................................................135

Check for Trouble............................................................................................................136

8 Write Your Marketing and Personnel Plans

Introduction......................................................................................................................140

Marketing Plan..................................................................................................................140

Personnel Plan..................................................................................................................153

9 Editing and Finalizing Your Business Plan

Introduction......................................................................................................................158

Decide How to Organize Your Plan.............................................................................158

Write Final Portions of Your Plan..................................................................................159

Create the Appendix ...................................................................................................... 164

Create Title Page and Table of Contents.....................................................................165

Complete Your Final Edit................................................................................................166

Consider Using a Business Consultant .......................................................................167

10 Selling Your Business Plan

How to Ask for the Money You Need..........................................................................170

How to Approach Different Backers............................................................................172

What to Do When Someone Says “Yes” ....................................................................176

Plan in Advance for Legal Details .................................................................................177

11 After You Open—Keeping on the Path to Success

Introduction......................................................................................................................182

Watch Out for Problem Areas .......................................................................................182

Getting Out of Business .................................................................................................186

12 Good Resources for Small Businesses

Introduction......................................................................................................................190

Business Consultants ......................................................................................................190

Books ..................................................................................................................................192

Pamphlets ..........................................................................................................................198

Magazines—Continuing Small Business Help...........................................................198

Computers and Business................................................................................................199

Online Business Resources .......................................................................................... 202

Formal Education ............................................................................................................ 204

Appendixes

A Business Plan for a Small Service Business.......................................207

B Business Plan for a Manufacturing Business .................................. 223

C Business Plan for Project Develpment.................................................241

D How to Use the CD-ROM

Installing the Form Files Onto Your Computer........................................................ 252

Using the Financial Planning Spreadsheets .............................................................. 253

Using the Business Plan Files........................................................................................ 255

Index

What Kind of Plan Do You Need?..............................................................................2

Meet Antoinette....................................................................................................4

Getting Started..............................................................................................................4

And a Few More Words ...............................................................................................5

How to Use This Book

I

Introduction

2 | How to Write a business Plan

“Nine to five ain’t takin me where I’m bound.”

—Neil Diamond,

from “Thank the Lord for the Nighttime”

“You’ve got to be careful if you don’t know

where you’re going because you might not

get there.”

—Yogi Berra

Here is a book designed to help you write a

first-rate business plan and loan application.

How to Write a Business Plan contains

detailed forms and step-by-step instructions

designed to help you prepare a well-thought￾out, well-organized plan. It shows you how to

apply proven financial and business planning

techniques used by traditional lenders and

investors to your benefit. Coupled with your

positive energy and will to succeed, this book

shows you how to design a business plan

and loan package you will be proud to show

to the loan officer at your bank, the Small

Business Administration, or your Uncle Harry.

But this book does more than just take

you through the steps of writing a business

plan. More importantly, the tools and

techniques in this book help you decide

if your business idea will work. The same

financial and analytical tools necessary to

convince potential lenders and investors

that your business idea is sound can help

you decide whether your idea is the right

business for you.

After working with hundreds of business

owners, I have observed an almost universal

truth about business planning: Writing a

plan is an internal journey through the mind

of one person. Even in partnerships and

corporations, usually one person has the

vision and energy to take an idea and turn

it into a business by writing a business plan.

For that reason, I have addressed this book

to the business owner as a single individual

rather than a husband and wife team, group,

committee, partnership, or corporation.

What Kind of Plan

Do You Need?

You can use How to Write a Business Plan to

write whatever type of plan best suits your

needs:

• Complete business plan. By writing

this type of plan, you’ll gain a thorough

understanding of all aspects of your

business. A complete business plan is

especially helpful for people who are

starting a new business. This form of

plan is also excellent for convincing

prospective backers to support your

business. You’ll be more successful

in raising the money you need if you

answer all of your potential backers’

questions. A complete plan should

include the following elements:

Title Page: Chapter 9

Plan Summary: Chapter 9

Table of Contents: Chapter 9

Problem Statement: Chapter 3

Business Description: Chapter 3

Business Accomplishments: Chapter 5

Marketing Plan: Chapter 8

Sales Revenue Forecast: Chapter 3

Profit and Loss Forecast: Chapter 6

Introduction | How to use this book | 3

Capital Spending Plan: Chapter 7

Cash Flow Forecast: Chapter 7

Future Trends: Chapter 3

Risks Facing Your Business: Chapter 8

Personnel Plan: Chapter 8

n Business Personality: Chapter 8

n Staffing Schedule: Chapter 8

n Job Descriptions: Chapter 8

Specific Business Goals: Chapter 2

Personal Financial Statement: Chapter 5

Personal Background (Your Strong and

Weak Points, General and Specific

Skills Your Business Needs, Your

Likes and Dislikes): Chapter 2

Appendix: Table of Contents: Chapter 9

Appendix: Supporting Documents:

Chapter 9.

• Quick plan (one-day plan). This method

allows you to produce a basic business

plan in a short time—as little as one

day in some cases. If you know your

business, are familiar with and able

to make financial projections, and

have done the necessary research,

you may be able to create a plan in

one day. But understand that a quick

plan is a stripped-down version of

a business plan. It won’t convince

either you or your prospective backers

that your business idea is sound. It is

appropriate only if your business idea

is very simple or someone has already

committed to backing your venture.

Most lenders and investors receive

many requests for money every week

and they develop a set of criteria that

helps them screen proposals. The

basic information in a quick plan is

usually not enough for them to make a

decision. Sad to say, most busy backers

will turn down a proposal before they

will ask for more information. Potential

backers, just like most people, prefer a

deluxe version with all the extras to a

stripped-down model.

A stripped-down quick plan has

these few components:

Title Page: Chapter 9

Plan Summary: Chapter 9

Table of Contents: Chapter 9

Problem Statement: Chapter 3

Business Description: Chapter 3

Business Accomplishments: Chapter 5

Sales Revenue Forecast: Chapter 3

Profit and Loss Forecast: Chapter 6

Capital Spending Plan: Chapter 7

Cash Flow Forecast: Chapter 7

Supporting Documents: Chapter 9.

Quick Plan. The “quick plan” icon

appears at the beginning of each

chapter containing quick plan components

and guides you to the sections you’ll need.

• Customized plan. Of course, you

can start with a quick plan and add

components from the complete

business plan to suit your needs. When

deciding what to include and what to

exclude, ask yourself:

n Which of my statements are the

strongest?

n Which statements do my backers

want to see?