The Complete Idiot's Guide to Business Plans

by Gwen Moran and Sue Johnson
A member of Penguin Group (USA) Inc.
Business Plans

by Gwen Moran and Sue Johnson
A member of Penguin Group (USA) Inc.
Business Plans
This book is dedicated to the brave, visionary people who start and run the businesses that power
our nation’s economy.
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Copyright © 2005 by Gwen Moran and Sue Johnson
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Library of Congress Catalog Card Number: 2005928079
Note: This publication contains the opinions and ideas of its authors. It is intended to provide helpful and informative
material on the subject matter covered. It is sold with the understanding that the authors and publisher are not engaged
in rendering professional services in the book. If the reader requires personal assistance or advice, a competent profes-
sional should be consulted.
The authors and publisher specifically disclaim any responsibility for any liability
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which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.
Publisher: Marie Butler-Knight
Product Manager: Phil Kitchel
Senior Managing Editor: Jennifer Bowles
Senior Acquisitions Editor: Mike Sanders
Development Editor: Ginny Bess Munroe
Production Editor: Megan Douglass
Copy Editor: Jan Zoya
Cartoonist: Jody Shaeffer
Indexer: Heather McNeill
Layout: Becky Harmon
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ISBN: 1-4406-9085-5
Contents at a Glance
Part 1: Getting Started 1
1 According to Plan 3
How your plan can help you
2 Figuring Out the Financing 15
Understanding your business’s financial needs
3 Business Writing Basics 29
Tips and pitfalls to consider while writing your plan
Part 2: Putting Together Your Plan 37
4 Ready, Set, Write 39

Putting your business ideas on paper
5 Getting Down to Business 47
How to put your best business foot forward
6 Industry Overview 61
Describing your industry and its climate
7 Who Are You? 75
Your people are your primary asset; how to showcase your
dream team
8 Analyzing Your Business in the Market 87
Explaining how your business will perform in the market
9 Getting the Word Out 105
Positioning and promoting your business for the best possible
results
10 Sales Plan and Forecast 119
Explaining how you’ll sell your stuff
11 Operation Success 129
Making the most of your day-to-day business activities
12 Money, Money 141
Financial statements you’ll need to know for your plan
13 Show Your Documents 159
Supporting your claims with all the right backup documents
14 Executive Summary 169
What you’re going to tell them in this critical part of your
plan
Part 3: Putting Your Plan to Work 175
15 Financing Considerations to Include in Your Plan 177
How to use your plan for investment or lending purposes
16 Using Your Plan as a Management Tool 189
How your plan can help everyone in the business get on the
same page

17 Keeping Your Plan Current 205
How to keep your plan up to date and relevant
Appendixes
A Business Terms Glossary 215
B Sample Plans 221
C Resources 301
Index 307
Contents
Part 1: Getting Started 1
1 According to Plan 3
Business Owner Basics 3
Types of Business Plans 4
Securing Financing or Investors 5
Strengthening Operations 5
Preparing for a Sale 5
How Can a Plan Help? 5
Establishing a Vision and Direction 6
Keeping on Course 6
Setting Goals and Benchmarking Success 6
Outlining Operations 7
Fiscal Fitness 7
Checking the Ego 7
Thorough Research 8
Marketing Plan 8
Feasibility 8
Future Expansion 8
Exit Strategy 8
Your USP 9
Finding Your USP Through Feedback 9
Doing It Yourself or Getting Help? 10

Finding Free or Low-Cost Help 11
Hiring Help 11
Getting Soft 12
2 Figuring Out the Financing 15
Understanding Debt and Equity 16
Debt 16
Equity 16
Money Sources 16
Grants 17
Personal Resources 17
Loans 19
Selecting a Lender 21
Angel Investors 21
Other Funding Sources 22
The Complete Idiot’s Guide to Business Plans
vi
EDA 22
Community Development Centers 22
Trade or Business Groups 22
What Lenders and Investors Want 23
Capacity to Repay 23
Capital to Invest 23
Collateral 24
Conditions of Use of Money 24
Character of Owners 24
Credit Rating 24
Credit-Reporting Bureaus 25
Your Credit Score 26
Assessing Your Report 26
Increasing Your Score 27

Beware of Quick Credit Fixes 28
3 Business Writing Basics 29
Effective Business Writing 29
Targeting Your Audience 30
Language and Tone 30
Grammar 31
Cutting the Fluff 32
Avoiding Clichés 33
Presenting Your Information 33
Capitalizing and Punctuating Properly 34
Writing, then Rewriting 35
Avoiding Writer’s Block 35
Speaking and Writing Well 36
Part 2: Putting Together Your Plan 37
4 Ready, Set, Write 39
From Dream to Document 39
Being Organized 40
Knowing Your Stuff 40
Supporting Your Claims 41
Getting to the Goal 41
Obtaining Financial Assistance 41
Attract Business Partners 43
Operation Benchmark 43
Contents
Obtain Assistance 43
Iterative Process 44
Staying Updated 44
Analysis 44
Annual Meeting 45
5 Getting Down to Business 47

Getting Off on the Right Foot 48
Title Page 50
Table of Contents 52
Confidentiality Agreement 52
Executive Summary 55
Purpose 55
Business Description 55
Structure 55
Owners 56
Location 56
Hours of Operation 56
Season’s Greetings 56
What Is It? 57
We’re on a Mission 57
Mission Statement 58
Vision Statement 58
Values Statement 59
6 Industry Overview 61
Industrial Strength 61
Understanding Market Research 62
Interviews 63
Surveys 63
Focus Groups 63
Online Focus Groups 64
Observation 64
Understanding the Industry 64
Industry Life Cycle 64
Industry Economics and Trends 66
Opportunities and Obstacles 67
Innovations 67

Regulations 68
Economic Factors 68
vii
The Complete Idiot’s Guide to Business Plans
viii
Price Comparisons 69
Location 69
Competition 69
Business Performance 71
7 Who Are You? 75
Internal Assets 76
Owners and Partners 76
Staffing 77
Management Team 77
Outsourcing and Consultants 79
Employee or Contractor? 79
Who Is an Independent Contractor? 80
Who Is a Common-Law Employee? 80
Who Is an Employee? 81
Statutory Employees 81
Statutory Nonemployees 82
Organizational Chart 82
Salaries 83
Strategic Partners 83
Professional Resources 84
CPA 84
Attorney 84
Bank 84
Insurance Professionals 84
Other 85

8 Analyzing Your Business in the Market 87
Getting Down to Strategy 88
Targeting Your Customers 89
Demographic Profiles 90
Income and Spending Habits 90
Personal Characteristics 90
Standard of Living 90
Household Characteristics 91
Getting Psychographic 91
Opinions and Values 91
Political Views 91
Style and Taste 92
Contents
ix
Defining Business-to-Business Customers 92
Type of Business and Ownership 92
Sector 92
Geography 93
Psychographic Characteristics 93
Who Is Your Perfect Customer? 93
Why Do They Buy? 95
Do They Need It or Want It? Can They Afford It? 95
What’s Important to Them? 95
For Whom Are They Buying? 95
Who Are Your Customers’ Influencers? 95
Are They Brand Loyal or Price Driven? 96
How Do They Buy? 96
Creating Profiles 96
Innovators 97
Thinkers 97

Achievers 97
Experiencers 98
Believers 98
Strivers 98
Makers 99
Survivors 99
Why You Shouldn’t Service Every Customer 99
Evaluating Market Segments 100
Defining Your Market Strategy 101
The SWOT Approach 101
Strengths 101
Weaknesses 102
Opportunities 102
Threats 102
Predicting Market Share 103
9 Getting the Word Out 105
Positioning Your Business in the Market 105
Explaining Your Marketing Strategy 106
Price 107
Place (Distribution) 107
Promotion 107
Putting Together the Marketing Plan 113
Being Clear About Goals 114
Planning the Action 114
The Complete Idiot’s Guide to Business Plans
x
Budgeting Your Resources 115
Creating a Marketing-Cost Matrix 115
Timing Your Projects 116
10 Sales Plan and Forecast 119

Selling Yourself 119
Your Channels 120
Direct Selling 120
Manufacturer’s Representatives 120
Wholesalers 120
Retailers 121
Catalogs 121
E-tailing 121
Affiliate Programs 121
Sales Tools 122
Database 122
Technological Tools 122
Trade Shows 122
Territories 123
Finding Prospects 123
Referral Systems 123
Vendor Contacts 123
Expanding Existing Customers 123
Joining In 124
Offering a Better Price 124
Sales Cycles and Strategies 124
AIDA 125
Sales Cycle 125
Sales Forecast 127
Outlining Your Assumptions 127
Considering Your Marketing Reach 127
Past Sales or Similar Industries 127
11 Operation Success 129
Business Operations 129
Equipment 130

Technology Needs 131
Equipment Leases 132
Building Leases 132
Price 132
Length of Lease 133
Contents
xi
Location and Traffic 133
Potential for Growth 133
Utilities and Services 134
Production/Service Provision Methods 135
Quality Control 135
Inventory and Supply 136
Managing Inventory 136
Purchasing Policies 137
Suppliers 137
Handling Orders and Deliveries 137
Vendor Agreements or Letters of Intent 138
Customer-Service Policies 139
12 Money, Money 141
Start-Up Costs 142
Creating an Operating Budget 143
Source and Use of Funds 144
Managing Cash Flow 145
Creating a Cash-Flow Statement 145
Understanding Profit-and-Loss Statements 147
Understanding the Balance Sheet 149
Determining Profitability with Financial Tools 151
Are You Profitable? 151
Break-Even Point 152

Outlining Repayment/ROI 152
Analysis of Financial Facts 153
Determining How Much Financing Is Needed 153
How Much Owners Are Investing 154
Insurance Needs 154
Cover Me 155
Prove It 156
13 Show Your Documents 159
Back Me Up 159
Resumés or Bios 160
Personal Financial Statements and Tax Returns 162
Business Structure (Articles of Incorporation) 162
Loans 163
Credit Reports 163
Franchise or Acquisition Agreements 163
Leases or Mortgage 164
The Complete Idiot’s Guide to Business Plans
xii
Licenses 164
Letters of Intent 165
Market Analysis 166
Other 166
14 Executive Summary 169
In Summary 169
What’s in the Executive Summary 170
Selling in Your Summary 171
Company Overview 171
Operations Overview 171
Market Overview 172
Financial Overview 172

Paring It Down 173
What Not to Put in the Executive Summary 174
Part 3: Putting Your Plan to Work 175
15 Financing Considerations to Include in Your Plan 177
The Money Plan 178
Who’s Got the Cash? 178
What Lenders Want to See 179
Knocking a Lender’s Socks Off 180
Negotiating Your Financing 181
Types of Loans 182
Transaction Loans 182
Line of Credit 182
Term 182
Government-Secured Loans 183
Lease 183
What to Expect During the Loan Process 183
Finding Investors 185
Money Online 186
What Investors Want 187
Other Financial Uses for the Plan 187
16 Using Your Plan as a Management Tool 189
Planning to Run 189
Planning Findings 190
Solidifying Your Philosophy 190
Developing a Strategic Vision 190
Contents
Identifying Improvements 191
Preventing Distractions 191
Avoiding Misunderstandings 192
Implementing Your Plan 192

Providing Strong Leadership 192
Stating Clear Expectations 193
Creating Actionable Steps 193
Being Ready for Barriers 193
All Aboard 194
Creating an Advisory Board 194
Identifying and Building Relationships 196
Strategic Partners 196
Staffing Up 198
Keeping Them Motivated 198
Creating Employee Incentives 199
Getting Employees Onboard with Your Plan 201
Managing the Future 202
17 Keeping Your Plan Current 205
Keeping It Going 205
Measuring Your Company’s Success 206
Getting Information 207
Your Financial Statements 207
Your Customer Database or Sales Figures 207
Your Employees 208
What Do Customers Really Think? 209
Using the Information You Find 210
When It’s Time to Go, It’s Time to Go 210
Going Forward 212
Appendixes
A Business Terms Glossary 215
B Sample Plans 221
C Business Resources 301
Index 307
xiii

Foreword
I have written dozens of business plans. I have read thousands of them. After almost
20 years of building companies, I have come to realize that the actual business plan-
ning document is almost always meaningless. That’s right. The final written product
we call “the plan” is actually almost worthless.
As a serial entrepreneur and angel investor, every business plan I ever read says the same
thing: “We get rich in year five.” Each plan states that this new company addresses a
“billion dollar untapped market” and furthermore, its financial projections are “con-
servative.” Let’s face it. These are both lies. If publicly traded companies are unable to
unfailingly predict the financial goals they are able to hit next quarter, how can the
new business owner predict what business will be like in year two?
However, the
process of researching and writing a plan for your business is valuable and
essential to building a profitable company. President Dwight Eisenhower said, “I have
always found that plans are useless, but planning is indispensable.” A business plan that is not
properly researched or that is not regularly revisited and integrated into the company’s
operations is useless. In business, as in most of life, things almost never happen the
way we plan them. However, the actual process of considering all of the possibilities is
critical. It teaches you essential survival techniques at all phases of your business.
Stop searching for the perfect business plan format. There are no absolutely right
answers. Don’t look for magic in pricey consultants. You need to write the first draft
yourself because the process is a key learning step. Focus on the guidelines in this
book as best you can. Write simply. Leave the cool buzz words and fancy jargon out.
Build your projections from the ground up. Figure out what it will cost to make your
product or deliver your service. How will you acquire new customers? How much
business can you expect per customer? When you consider these questions, is your
new business even feasible? These are some of the most valuable questions to answer!
The work you do to find the answers is what matters, not how perfectly constructed
the final plan is.

After you have worked hard to put together the best plan you can, stop typing,
researching, and surveying. Instead, get out of your chair and actually talk to people
who might be real customers and are in a position to buy your product or service
today. Are they willing to part with their cash to solve a problem they have? What is
the Unique Selling Proposition (USP) you can offer prospective customers? You will
not know the real answer until you ask someone to buy what you are selling.
Although planning is essential, premeditated business can be a dangerous thing. If
you create your plan and stick by it no matter what, you could doom your business to
failure by being inflexible. Write your plan, and revisit it regularly to change what’s
not working. Too many small business owners set a goal and try to reach it no matter
what. Sometimes, that tenacity is the backbone of their success. But sometimes, when
they fail to see the signs that the goal might not be the best direction for the business,
that lack of flexibility can be a business death sentence.
What do businesses need most? Not a perfectly written business plan, but a well-
researched plan. Companies need enough cash to grow and thrive, which a good plan
can help land. They need to manage that cash through constant analysis of cash flow.
They need a management team that can execute the plan. They need a marketing and
distribution component so prospects can access the product or service. Finally, they
need repeat customers and referrals.
Read this book. Write your plan. Keep talking to customers. And then modify your
plan to make the most of what’s working and to stop wasting effort on what’s not
working. These are the steps that will get your business off to a great start.
—Barry Moltz, www.moltz.com
Chicago, Illinois
June 2005
Introduction
There’s no feeling like starting your own business. Opening a fresh box of business
cards with “Your Name, Owner” on them, or sitting in your brand-new office for the
first time—it’s heady stuff and an achievement about which many only dream.
But you’re different. You’ve taken the plunge, or are making the plans to do so. Because

you’re holding this book in your hands, you’re also more likely than the average start-
up to succeed.
Why? You’ve realized the critical importance of creating a business plan. Whether
you’re in need of financing, or simply need a road map to guide your business, a well-
prepared and properly targeted business plan will help you to achieve the goals that
you’ve set for your business by documenting the goals, resources, and processes that
will propel your business forward.
There’s an old adage that says, “Failing to plan is planning to fail.” That is never
more true than when it is applied to a business plan. We have seen this phenomenon
firsthand, consulting with and counseling scores of businesses. Those ventures that
operate without a solid game plan in place are much more at risk to fail than those
that take the time to plan.
Because we’ve both been in the trenches as entrepreneurs, we know how valuable your
time is. As we’ve written this book, we assume that you know the basics—how to choose
which business is right for you, how to structure it, how to staff it, and the like. We’ve
written this book to show you how to take the facts about your business and put them
on paper in a way that will interest lenders, business partners, or other decision-makers,
and how to create a plan that will become a critical management tool for your busi-
ness. So we’re going to dive into the nuts and bolts of crafting your plan. (If you do
need to brush up on start-up basics, be sure to read
The Complete Idiot’s Guide to
Starting Your Own Business, Fourth Edition, by Edward Paulson.)
And, again, because we have been entrepreneurs like you, we’ll share the best tips,
secrets, and tactics that we’ve learned on our own. We know the amount of courage,
resolve, and commitment it takes to do what you’re doing. We want to help you make
that investment pay off.
Who This Book Is For
The Complete Idiot’s Guide to Business Plans is for anyone who is starting or acquiring a
business and wants to go the extra mile to ensure its success. Whether you’re using
your plan to map out management and marketing strategies or going after big bucks,

we’ll show you how to put the best possible words and numbers on paper.
The Complete Idiot’s Guide to Business Plans
What You Need to Know Before You Start
The Complete Idiot’s Guide to Business Plans assumes that you’ve got basic business
knowledge. We won’t explain the nuts and bolts of how to run your business because
you already know the difference between a balance sheet and a budget.
We assume that you have a solid business idea or prospect in mind. This book takes you
through the process of extracting the information you need in an acceptable business-
plan format to secure financing or to strengthen your business operations, management,
and marketing. Anytime you put a series of goals and objectives, as well as a plan for
fulfilling them, on paper, you vastly increase the chances of achieving those goals and
objectives. That’s what we’ll help you to do.
While we recommend a format and order for the information, you may find that mix-
ing up that order works best for your business. That’s fine. You’ll see in the sample
business plans that business plans come in many forms and formats. Write the plan
that feels most comfortable for you and fulfills the purpose you need to achieve.
What You’ll Find in This Book
The Complete Idiot’s Guide to Business Plans is organized to walk you through the process
of writing your business plan in a step-by-step sequence. Because there are some sec-
tions that you’ll write out of order, we mention them within the sequence and then
pay more attention to them when you’re at the point at which you need to write it.
The book has four sections:
Part 1, “Getting Started”: This is where we give you the basics, a few facts that you’ll
need to know, and a briefing of what you’ll need to write your plan more easily. We’ve
also included a chapter on business-writing basics that will help you with some of the
common issues of structure, composition, grammar, and punctuation that often plague
those who don’t regularly write for a living (and that sometimes plague those who do).
Part 2, “Putting Together Your Plan”: Here is where the majority of the book’s
focus lies. We’ll walk you through the planning process, including how to set goals
for your plan and how to write it to achieve those goals. Throughout, we’ve woven

sections of real-life business plans to show you how it’s done.
Part 3, “Putting Your Plan to Work”: Once you’ve put your plan together, don’t
just put it on a shelf or in a drawer! In this part, we’ll show you how to make your
plan an important part of your business, how to keep it updated, and how to use it to
obtain financing.
xviii
Introduction
Appendixes: This isn’t your garden-variety “stuff at the back of the book.” Our last
section is chock-full of sample business plans from various types of businesses, rang-
ing from retailers to consultants to manufacturing firms and more. Our glossary will
brief you on the terms you need to know, and our list of business resources will show
you where to turn for help, information, and advice.
Together, these four sections will tell you just about everything you need to know
about writing a knock-their-socks-off business plan. And while we know that follow-
ing these directions will leave you with a solid plan, it is our sincere hope that it will
also leave you with a better understanding of and vision for your business.
So let’s get ready to write.
How to Get the Most out of This Book
To get the most out of this book, read it through first and examine the sample busi-
ness plans. You can also head online to examine other sample business plans to choose
the format that works best for you and your business.
Once you’re familiar with the content, use the book as a guide to help you write your
plan. By tackling each of the parts in this book, you can then use the order that we
suggest, or reorganize the information the way that you see fit, or in the way that’s
required by your lender, investors, or consultants. Either way, this book will help you
get to the heart of the most important information more quickly.
In Part 3, we also address the issues of using your plan as a tool. No business plan is
worthwhile if it just sits in a desk or on a hard drive. We show you how to make your
plan into a real tool for your business, as well as how to integrate it into your opera-
tions to keep it current and relevant to your business.

Pay particular attention to the sidebars and margin notes, which include tips, warn-
ings, secrets, and money-saving tidbits. These notes may be short in format, but
you’ll find great value in how they can shorten your learning curve and boost your
bottom line!
xix
Because time is money, these
tips will help save you both as
you write your plan.
Bottom Line Booster
In business, mistakes
can cost you. These sidebars will
give you fair warning about
potential pitfalls to avoid.
Red Zone
The Complete Idiot’s Guide to Business Plans
Let Us Know What You Think
For updates on the book and additional information about small-business resources,
visit Gwen Moran’s website (www.gwenmoran.com).
We welcome your feedback and success stories. If you have suggested resources or if
this book has helped you, let us know at or
Acknowledgments
We’d like to thank the folks at Alpha Books, including the amazing team who worked
on this book: Mike Sanders, Ginny Bess, Megan Douglass, Jan Zoya, and the produc-
tion team. Thanks to our agent, Bob Diforio, for all of his help, support, and constant
contact through his Blackberry!
Gwen would like to thank her family and friends for their support, advice, and assis-
tance in writing this book. Thanks to her parents, Thomas and Jeanice Moran, who
raised four individuals who are unafraid to open the door when opportunity knocks.
Thanks to her brothers, Shaun, Brian, and Eric Moran, who are a great group of
business advisors. And thanks to Joseph Raymond, who taught Gwen about the things

that are possible when we choose our own paths.
Thanks, also, to the many business owners Gwen has taught, with whom she’s worked,
and about whom she’s written over the years—their spirit, tenacity, and energy never
cease to inspire her. And special thanks to the entrepreneur who shares her home
address—her husband, Henry Nonnenberg Jr.—and their daughter, Abigail.
Sue would like to thank her mother and late father, Susan and Albert Mahalske, for
always encouraging her by saying, “You can accomplish anything you want by putting
your mind to it.” Thanks also to her loving husband, Bob Johnson, for supporting her
through all of her crazy and wonderful ideas, ventures, and businesses, as well as to
her two sons, Bobby and Chris, for all of their love and for being the wonderful
young adults that they are.
xx
The world of business
and writing business plans can be
confusing. These sidebars provide
definitions for the trickier terms.
Biz Buzz
In these sidebars, we’ll make you
privy to the tips, tricks, and little-
known facts that will help you
write your plan and run your
business.
Back Office Secrets
Introduction
She would like to extend special thanks to Bill Harnden and Vicki Lynne Morgan for
their time and input to some of the material in this book. Bill is the Assistant Director
of the Small Business Development Center (SBDC). After a long and distinguished
career in finance, he is currently employed at Raritan Valley Community College pro-
viding financial counseling to many small businesses through the SBDC. Vicki Lynne
owns Animal Brands, a marketing and sales representation agency, as well as Russmor

Marketing Group, which focuses on private consulting, counseling, mentoring, and
coaching for businesses, and is an SBDC counselor.
Thanks to the great people she works with at SBDC and RVCC, especially Bill Harnden
and Allison O’Neil for their team efforts and contributions, to their local SBDC, in
assisting small businesses. Thanks, also, to the many wonderful small-business owners
she has met and has had the opportunity to assist in their journey of pursuing their
dreams. Thanks, also, to Gwen for reaching out to her to co-author of this book!
A special thanks go to two very special businesses—Let’s Eat! started by owner Domenick
Celentano and Stellar Academy started by two sisters, Mary Matthews and Dr. Margaret
Buley—who have allowed us to use their business plans (modified for confidentiality) in
this book to benefit and assist other future small-business owners. Through the Small
Business Development Center, Sue Johnson had counseled with each of these businesses.
Trademarks
All terms mentioned in this book that are known to be or are suspected of being
trademarks or service marks have been appropriately capitalized. Alpha Books and
Penguin Group (USA) Inc. cannot attest to the accuracy of this information. Use of a
term in this book should not be regarded as affecting the validity of any trademark or
service mark.
xxi

1
Here’s what you need to know before you begin drafting your plan, includ-
ing the financial and basic company information you should have on hand.
This part also includes a few tips on business writing basics. In Chapter 1, we
discuss plan basics, such as how your plan can help you run your business
as well as give you an overview of what you can expect during the process.
In Chapter 2, we give you an overview of financing options and help you
understand the financing needs of your business. Chapter 3 gives you a
head start on business writing basics to help make the process of writing
much less intimidating.

Part
Getting Started