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Initial Business Plan Draft

    Chapter 4 – Initial Business Plan Draft

    Learning Objectives

    After completing this chapter, you will be able to

    • Develop a comprehensive business plan draft


    This chapter describes an approach to writing your draft business plan. It also outlines the elements of a comprehensive business plan that can be used as a template for starting your business plan.

    Figure 7 – Initial Business Plan Draft (Illustration by Lee A. Swanson)

    Effective Business Plans

    Effective business plans

    • Provide statements that are backed by evidence or data
    • Include context and references with every table, figure, or illustration
    • Include relevant, clear, concise tables and financial information, and exclude unnecessary material
    • Present timelines for distinct purposes
    • Use clear sections customized to the particular business or its environment rather than generic sections
    Evidence-based claims strengthen your business plan.Providing context for tables and figures is critical.

    Writing the Draft Business Plan

    Although there are various ways to approach the task of writing a draft business plan, one effective approach is to do the following:

    • Use the following sections of this chapter to prepare an outline for your business plan. You should use the headings feature in Word so that you can later automatically generate a table of contents
      • This will provide you with a template for the information needed for your plan.
    • Insert the relevant parts of the written work produced during essential initial research into your new business plan template. You can do this in one of two ways:
      • You can copy and paste the results of your essential initial research into the sections of your business plan template where you believe that they can be used to support or justify the strategies and other decisions you will later describe in those sections. Of course, you can later move those parts of your environmental scan as needed as you develop your plan. In general, this strategy results in a stronger business plan.
      • Or you can insert the results from your societal-level and industry-level analyses in an Operating Environment section as listed in the outline below. As described below, the market-level analysis will probably always fit best within the Marketing Plan and the firm-level analysis might fit across all of the plans within the business plan.
        • Completing this step will give you the satisfaction of seeing some of your work so far taking shape in the form of a business plan.
        • Also, inserting the results from your environmental scan into the relevant sections of your plan should later provide you with the stimulus and support you will need to develop solid, realistic, evidence-based strategies and decisions for those sections.
    • Incorporate your business model into your new business plan template. As there is no section in a business plan in which you specifically describe your business model, you will need to incorporate your business model elements into appropriate sections of your plan.
    • Fill in as much relevant information as you can under as many of the headings on your business plan template as possible.
      • You will normally include both information that you got from particular sources and information based on an assumption you made (and that you might intend to replace later with more accurate information from valid sources).

    Follow these practices as you develop your plan:

    • Every time that you insert something into your business plan template that you got from a supplier’s catalogue, clearly indicate from where you got that information. For example, if you list the office equipment and furniture that you need along with their exact costs as taken from suppliers’ catalogue, clearly indicate from which catalogue(s) you got the information. Similarly, if you spoke to an industry expert who recommended that you manufacture your product in a particular way, clearly indicate who you spoke to and what their credentials are, if you got the person’s permission to do so.
      • When you do this, you help establish your credibility as a business plan writer, and your business plan’s credibility. It also might save you time later when you discover that you need to add a similar item along with its cost to your list.
      • Note: Do not reinvent the wheel by “inventing” your own method to reference your sources and do not use multiple methods. Use one (and only one) proper and well-established referencing method, like APA. This will improve the degree of professionalism of your plan.
    • Every time that you insert something into your plan that did not come from a source, a best practice is to highlight that part of your plan, possibly by using a distinct font color. The objective will be to ultimately replace all of those assumptions with source-backed information. When you do so, change the font to its regular color so you can quickly and easily see what still needs to be sourced.
      • Note: if you are an expert source on something—maybe you are a construction expert that business plan readers will trust to do estimates on building costs—you should establish your credentials and clearly indicate when some of the information in your plan is based on your own expert knowledge.
      • When you flag your assumptions in this way, you can quickly and easily see what information needs to be replaced with sourced information before you finalize your business plan.
    • Use the appropriate schedule in the spreadsheet templates to record estimated sales revenue for each month. You must base these sales projections on well-reasoned criteria and set them up in your spreadsheets using formulas so that if you need to change a criterion later, you can change a number in one cell or a limited number of cells rather than having to change all of them.
      • Projecting realistic sales can be difficult, but setting up a method for doing so early gives business plan writers a significant start toward completing their business plan. A well-developed sales model that takes advantage of the powers of electronic spreadsheets gives business plan writers the opportunity to relatively quickly and easily make necessary changes to their assumptions and overall estimates when needed.
    • Use the spreadsheet templates by filling in all of the numbers you have in the various schedules. As you are doing in the written part of your plan, use a distinct font to flag numbers that are based on assumptions. When you have actual numbers, be certain that it is clear to a reader what sources you used to get those numbers.
      • When you use the schedules provided on the spreadsheet templates, and any others that you add, you will be well on your way to developing the financial component of your business plan.
    Providing references strengthens the credibility of claims and makes the business plan stronger.

    General Business Plan Format

    Letter of Transmittal

    A letter of transmittal is similar to the cover letter of a resume. The letter of transmittal should be tailored to the reader, clearly identifying the customized ask of the potential investor or lender. It should be short and succinct, delineating the ask (i.e. funding, specialized recruiting, purchasing a product or service, obtaining advice, etc.) within a few paragraphs. It should not summarize the business plan, as that is the job of the executive summary.

    Title Page

    • Includes nice, catchy, professional, appropriate graphics to make it appealing for targeted readers

    Executive Summary

    • Can be longer than normal executive summaries—up to three pages
    • Written after remainder of plan is complete
    • Includes information relevant to targeted readers as this is the place where they are most likely to form their first impressions of the business idea and decide whether they wish to read the rest of the plan

    Table of Contents

    List of Tables

    • References every table, figure, and appendix within the text of the plan so the relevance of each of these elements is clear.

    List of Figures


    • Indicates the purpose for the plan
    • Appeals to targeted readers

    Business Idea

    • May include description of history behind the idea and the evolution of the business concept if relevant

    Value Proposition

    • Explains how your business idea solves a problem for your expected customers or otherwise should make them want to purchase your product or service instead of a competitor’s


    • Outlines what you intend for the venture to be
    • Inspires all members of the organization
    • Helps stakeholders aspire to achieve greater things through the venture because of the general direction provided through the vision statement

    After articulating a good vision, the business plan writer should consider what achieving the vision looks like. Many business plan writers write their vision and leave it at that. The problem with this approach is that they often then do not take the necessary steps to illustrate how the strategies they outline in their plan will move them toward achieving their vision. If they make this mistake, their strategies might indicate that they are fulfilling their current mission, but are not taking steps to move beyond that.


    Vision statements should be clear with context throughout the business plan.  For example, if the goal is to be the premier business operating in that industry in Saskatchewan, does that mean you have one location and are considered the best at what you do it even though you only have a small corner of the market, or does it mean that you have many locations across the province and enjoy a large market share?

    Vision statements should be clear with context throughout the business plan.


    • Should be very brief—a few sentences or a short paragraph
    • Indicates what your organization does and why it exists—may describe the business strategy and philosophy


    • Consists of five to ten short statements indicating the important values that will guide everything the business will do
    • Outlines the personal commitments members of the organization must make, and what they should consider to be important
    • Defines how people behave and interact with each other
    • Should be reflected in all of the decisions outlined in the business plan, from hiring to promotions to location choices
    • Helps the reader understand the type of culture and operating environment this business intends to develop

    Major Goals

    • Describes the major organizational goals
    • Ensures each goal is
      • Specific, Measurable, Action oriented, Realistic, and Timely [SMART]
      • Realistic, Understandable, Measureable, Believable, and Achievable [RUMBA]
    • Aligns with everything in plan
    • Written, or re-written as the second last thing you do before finalizing your business plan by proofreading, polishing, and printing it (writing the Executive Summary is the final thing you should write)
    SMART and RUMBA goals strengthen the business plan.

    Operating Environment

    Trend Analysis

    • Usually includes an analysis of how the current and expected trends in the political, economic, social, technological, environmental, and legal (PESTEL) factors will impact the development of this business
      • However, consider whether this is the right place for this analysis: it may be better positioned, for example, in the Financial Plan section to provide context to the analysis of the critical success factors, or in the Marketing Plan to help the reader understand the basis for the sales projections.

    Industry Analysis

    • Includes an analysis of the industry in which this business will operate
    • Typically applies the Five Forces Model (Porter, 1985)
      • As above, consider whether this is the right place for this analysis: it may be better placed, for example, in the Marketing Plan to enhance the competitor analysis, or in the Financial plan to provide context to the industry standard ratios in the Investment Analysis section.

    Of course, your trend analysis will also include a market-level analysis (using a set of questions, like those listed in Chapter 2) and a firm-level analysis (using tools like a SWOT Analysis / TOWS Matrix, various forms of financial analyses, a founder fit analysis, and so on), but those analyses are usually best placed in other sections of your plan to support the strategies and decisions you present there. The market-level analysis will inevitably fit in the Marketing Plan section, but the firm-level analysis might be spread across some or all of the Operating Plan, Human Resources Plan, Marketing Plan, and Financial Plan sections.

    Operations Plan

    • Answers the following key questions :
      • What constraints are you operating under that will restrict your capacity to produce and sell your product?
        • Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
      • What is the work flow plan for your operation?
      • What work will your company do and what work will you outsource?

    Operations Timeline

    • Answers the following questions:
      • When will you make the preparations, such as registering the business name and purchasing equipment, to start the venture?
      • When will you begin operations and make your first sales?
      • When will other milestone events occur such as moving operations to a larger facility, offering a new product line, hiring new key employees, and beginning to sell products internationally?
      • Sometimes it is useful to include a graphical timeline showing when these milestone events have occurred and are expected to occur.
    Completing the operation plans further adds to the overall business plan.

    Business Structure and other Set-up Elements

    • Indicates the legal structure your venture will take:
      • Sole Proprietorship
      • Partnership
      • Limited Partnership
      • Corporation
      • Cooperative

    Note: Your financial statements, risk management strategy, and other elements of your plan are affected by the type of legal structure you choose for your business. For example, all partnerships should have a clear agreement outlining the duties, expectations, and compensation of all partners as well as the process of dissolution.  Spreadsheet templates are formatted for corporations and will need to be formatted for other forms of businesses.

    • Describes your decisions related to the following:
      • Naming
      • Zoning, equipment prices, suppliers, etc.
      • Location
      • Leasing terms, leasehold improvements, signage, pay deposits, etc.
      • Getting business license, permits, etc.
      • Setting up banking arrangements
      • Setting up legal and accounting systems (or professionals)
      • Ordering equipment, locks and keys, furniture, etc.
      • Recruiting employees, setting up the payroll system and benefit programs, etc.
      • Training employees
      • Testing the products/services that will be offered
      • Testing the systems for supply, sales, delivery, and other functions
      • Creating graphics, logos, promotional methods, etc.
      • Ordering business cards, letter head, etc.
      • Setting up supplier agreements and outlining why those sellers are preferred
      • Buying inventory, insurance, etc.
      • Revising business plan
      • And many more things, including, when possible, attracting purchased orders in advance of start-up through personal selling (by the owner, a paid sales force, independent representatives, or by selling through brokers wholesalers, catalogue houses, retailers), a promotional campaign, or other means

    Note: As part of your business set-up, you need to determine what kinds of control systems you should have in place, establish necessary relationships with suppliers prior to your start-up, and generally deal with a list of issues like those mentioned above.


    • Answers the following questions:
      • What is required to start-up your business including the purchases and activities that must occur before you make your first sale?
      • When identifying capital requirements for start-up, a distinction should be made between fixed capital requirements and working capital requirements.

    Fixed Capital Requirements

    • Answers the following question:
      • What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its business?
    • May include a start-up budget showing the machinery, equipment, furnishings, renovations, and other capital expenditures required prior to operations commencing
      • May also show the financing required, often in the form of longer-term loans

    Working Capital Requirements

    • Answers the following question:
      • What money is needed to operate the business (separately from the money needed to purchase fixed assets) including the money needed to purchase inventory and pay initial expenses?
    • May include a start-up budget showing the cash required to purchase starting inventories, recruit employees, conduct market research, acquire licenses, hire lawyers, and other operating expenditures required prior to starting operations
      • May also show the financing required. Working capital is usually financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans

    Risk Management Strategies

    • Includes descriptions of the organization’s risk exposure
      • Enterprise – liability exposure for things like when someone accuses your employees or products you sell of injuring them
      • Financial – securing loans when needed and otherwise having the right amount of money when you need it
      • Operational – securing needed inventories, recruiting needed employees in tight labour markets, operating when customers you counted on not purchasing product as you had anticipated, managing theft, arson, and natural disasters like fires and floods, etc.
    • Always includes descriptions of the planned strategies for managing each of the risks identified. Identifies potential risk exposures, their consequences, risk potential, and mitigation strategies (Figure 8).
      • Avoid – choose to avoid doing something, outsource, etc.
      • Reduce – through training, assuming specific operational strategies, etc.
      • Transfer – insure against, outsource, etc.
      • Assume – self-insure, accept, etc.

    Figure 8 – Risk Management Strategies (Illustration by Lee A. Swanson)

    Completing a risk management plan further adds to the overall business plan.

    Operating Processes

    • Answers the following key questions:
      • What operating processes will you apply?
      • Depending upon the type of business, describes things like
        • Retail and wholesale operations
          • How will you ensure your cash is managed effectively?
          • How will you schedule your employees?
          • How will you manage your inventories?
          • If you will have a workforce, how will you manage them?
          • etc.
        • Service operation
          • How will you bill out your employee time?
          • How will you schedule work on your contracts?
          • etc.
        • Manufacturing operation
          • How you will manufacture your product (process flow, job shop, etc.?)
          • How will you maintain quality?
          • How will you institute and manage effective financial monitoring and control systems that provide needed information in a timely manner?
          • How will you manage expansion?
          • etc.


    • May include planned layouts for facilities
    • Answers the following questions:
      • What are your facility plans?
      • Where will your facility be located?
        • Expressed as a set physical location
        • Expressed as a set of requirements and characteristics
      • How large will your facility be and why must it be this size?
      • How much will it cost to buy or lease your facility?
      • What utility, parking, and other costs must you pay for this facility?
      • What expansion plans must be factored into the facility requirements?
      • What transportation and storage issues must be addressed by facility decisions?
      • What zoning and other legal issues must you deal with?
      • What will be the layout for your facility and how will this best accommodate customer and employee requirements?

    Organizational Structure

    • May include information on Advisory Boards or Board of Directors from which the company will seek advice or guidance or direction
    • May include an organizational chart
    • Can be a nice lead-in to the Human Resources Plan

    Human Resources Plan

    • Key questions answered by human resources plans:
      • How do you describe your desired corporate culture?
      • What are the key positions within your organization?
      • How many employees will you have?
      • What characteristics define your desired employees?
      • What is your recruitment strategy? What processes will you apply to hire the employees you require?
      • What is your leadership strategy and why have you chosen this approach?
      • What performance appraisal and employee development methods will you use?
      • What is your organizational structure and why is this the best way for your company to be organized?
      • How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each employee?
      • What are your payroll costs, including benefits?
      • What work will be outsourced and what work will be completed in-house?
      • Have you shown and described an organizational chart?

    Recruitment and Retention Strategies

    • Includes how many employees are required at what times
    • Estimates time required to recruit needed employees
    • Estimates all recruitment costs including:
      • Employment advertisements
      • Contracts with employment agency or search firms
      • Travel and accommodations for potential employees to come for interviews
      • Travel and accommodations for interviewers
      • Facility, food, lost time, and other interviewing costs
      • Relocation allowances for those hired including flights, moving companies, housing allowances, spousal employment assistance, etc.
    • May include a schedule showing the costs of initial recruitment that then flows into your start-up expense schedules

    Leadership and Management Strategies

    • Outlines your leadership philosophy
    • Explains why it is the most appropriate leadership approach for this venture


    • Answers the following key questions:
      • What training is required because of existing rules and regulations?
      • How will you ensure your employees are as capable as required?
      • In which of the following areas will you provide training for your employees?
        • Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
        • Initial workplace orientation
        • Management
        • Financial systems
        • Sales
        • Contracts
        • Product features
        • Other

    Performance Appraisals

    • Identifies how you will manage your performance appraisal systems

    Health and Safety

    • Notes any legal requirements (and also legal requirements for other issues that may be included in other parts of the plan)
    • Identifies accreditation you might pursue, such as ISO 9000, and if so, evaluates the costs, benefits, and time frame
    • Outlines training for employees, such as WHMIS training or machinery handling training


    • Always justifies your planned employee compensation methods and amounts
    • Always includes all components of the compensation (CPP, EI, holiday pay, etc.)
    • Identifies how you will ensure both internal and external equity in your pay systems
    • Describes any incentive-based pay or profit sharing systems planned
    • May include a schedule that shows the financial implications of your compensation strategy and supports the cash flow and income statements shown later

    Key Personnel

    • May include brief biographies of the key organizational people
    Completing the human resources plan further adds credibility to the overall business plan.

     Marketing Plan

    • Identifies the primary and secondary research you have done
      • You must show evidence of having done proper research, both primary and secondary. If you make a statement of fact, you must back it up with properly referenced supporting evidence.  If you indicate a claim is based on your own assumptions, you must back this up with a description as to how you came to the conclusion.
    • Shows an effective analysis of the economic environment relevant to your business
      • It is a given that you must provide some assessment of the economic situation as it relates to your business. For example, you might conclude that the current economic crisis will reduce the potential to export your product and it may make it more difficult to acquire credit with which to operate your business. Of course, conclusions such as these should be matched with your assessment as to how your business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it will take advantage of any opportunities your assessment uncovers.
    • Shows an effective assessment of the industry within which your venture will operate
      • You must provide an assessment of the industry coupled with descriptions of how your venture will prosper in those circumstances. A common approach used to assess the industry is to apply Porter’s (1985) Five Forces Model.
        • If you apply the Five Forces Model, do so in the way in which it was meant to be used to avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This model is meant to be used to consider the entire industry, not a subcomponent of it (and it usually cannot be used to analyze a single organization).
      • Your competitor analysis might fit within your assessment of the industry, or it might be best as a section within your marketing plan. Usually a fairly detailed description of your competitors is required, including an analysis of their strengths and weaknesses. In some cases, your business may have direct and indirect competitors to consider. Maintain credibility by demonstrating that you fully understand the competitive environment.
      • Assessments of the economic conditions and the state of the industry appear incomplete without accompanying appraisals outlining the strategies the organization can/should employ to take advantage of these economic and industry situations. So, depending upon how you have organized your work, it is usually important to couple your appraisal of the economic and industry conditions with accompanying strategies for your venture. This shows the reader that you not only understand the operating environment, but that you have figured out how best to operate your business within that situation.
    • Outlines an effective analysis of your venture (see the Organizational Analysis section below)
    Primary and secondary data further add to the strength of the business plan.Completing the marketing plan further adds to the overall business plan.

    Market Analysis

    • Usually contains customer profiles, constructed through primary and secondary research, for each market targeted
    • Contains detailed information on the major product benefits you will deliver to the markets targeted
    • Describes the methodology used and the relevant results from the primary market research completed
    • If there was little primary research completed, justifies why it is acceptable to have done little of this kind of research and/or indicate what will be done and by when
    • Includes a complete description of the secondary research conducted and the conclusions reached
    • Describes the potential customers
      • Define your target market in terms of identifiable entities sharing common characteristics. For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however, useful to define your target market as Canadian university students between the ages of 18 and 25, or as information technology managers at Canadian universities, or as student leaders at Canadian universities. Your targeted customer should generally be able to make or significantly influence the buying decision.
      • You must usually define your target market prior to describing your marketing mix, including your proposed product line. Sometimes the product descriptions in business plans seem to be at odds with the described target market characteristics. Ensure your defined target market aligns completely with your marketing mix (including product/service description, distribution channels, promotional methods, and pricing). For example, if the target market is defined as Canadian university students between the ages of 18 and 25, the product component of the marketing mix should clearly be something that appeals to this target market.
      • Carefully choose how you will target potential customers. Should you target them based on their demographic characteristics, psychographic characteristics, or geographic location?
    • Identify how your targeted customers make their buying decisions
      • You will need to access research to answer this question. Based on what you discover, you will need to figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to how your targeted customers make their buying decisions.


    • Fully describes the nature of your competitors
      • However, this information might fit instead under the market analysis section.
    • Describes all your direct competitors
    • Describes all your indirect competitors
    • If you can, includes a competitor positioning map to show where your product will be positioned relative to competitors’ products
      • If you include a competitor positioning map, insure that the x-axis and y-axis are meaningful. Often, competitor maps include quality and price as axes. Unless you can clearly articulate the distinction between high quality and low quality, it may be more valuable to have more meaningful axes or describe your value proposition relative to your competitors in the absence of a positioning map.

    Figure 9 – Competitor Positioning Map (Illustration by Lee A. Swanson)

    • Identifies your competitive advantage, your venture`s value proposition, and what distinguishes your business from that of your competitors in a way that will ensure your sales forecasts will be met
      • You must clearly communicate the answers to these questions in your business plan in order to attract the needed support for your business. One caution is that it may sound appealing to claim you will provide a superior service to the existing competitors, but the only meaningful judge of your success in this regard will be customers. Although it is possible some of your competitors might be complacent in their current way of doing things, it is very unlikely that all your competitors provide an inferior service to that which you will be able to provide.
    Demonstrating a competitive advantage makes the business plan stronger. A competitor positioning map provides context as to where your venture fits in the competitive landscape.

    Marketing Strategy

    • Covers all aspects of the marketing mix: your promotional decisions, product decisions, distribution decisions, and pricing decisions
    • Outlines how you plan to influence your targeted customers to buy from you (your optimum marketing mix, and why is this one better than the alternatives)
    Organizational Analysis
    • Leads in to your marketing strategy or is positioned elsewhere depending upon how your business plan is best structured
    • Often applies a SWOT Analysis to analyze the organization
      • If doing so, ALWAYS ensure this analysis results in more than a simple list of internal strengths and weaknesses and external opportunities and threats. A SWOT analysis should always prove to the reader that there are organizational strategies in place to address each of the weaknesses and threats identified and to leverage each of the strengths and opportunities identified.
      • An effective way to ensure an effective outcome to your SWOT Analysis is to apply a TOWS Matrix approach to develop strategies to take advantage of the identified strengths and opportunities while mitigating the weaknesses and threats. A TOWS Matrix evaluates each of the identified threats along with each of the weaknesses and then each of the strengths. It does the same with each of the identified opportunities. In this way strategies are developed by considering pairs of factors.
      • The TOWS Matrix is a framework with which to help you organize your thoughts into strategies. Most often you would not label a section of your business plan as a TOWS Matrix because this would not add value for the reader. Instead, you should describe the resultant strategies—perhaps while indicating how they were derived from your assessment of the strengths, weaknesses, opportunities, and threats. For example, you could indicate that certain strategies were developed by considering how internal strengths could be employed toward mitigating external threats faced by the business.
    Product Strategy
    • Identifies your product/service and why this particular product/service will appeal to your targeted customers more than the alternatives
      • If your product or service is standardized, you will need to compete on the basis of something else—like a more appealing price, having a superior location, better branding, or improved service. If you can differentiate your product or service, you might be able to compete on the basis of better quality, more features, appealing style, or something else. When describing your product, you should demonstrate that you understand this.
    Pricing Strategy
    • Outlines your pricing strategies and explains what makes these strategies better than the alternatives
      • If you intend to accept payment by credit card (which is probably a necessity for most companies), you should be aware of the fee you are charged as a percentage of the value of each transaction. If you don’t account for this you risk overstating your actual revenues by perhaps one percent or more.
    • Identifies your sales forecasts and explains why these are realistic
      • Sales forecasts must be done on at least a monthly basis if you are using a projected cash flow statement. These must be accompanied by explanations designed to establish their credibility for readers of your business plan. Remember that many readers will initially assume your planned time frames are too long, your revenues are overstated, and you have underestimated your expenses. Well crafted explanations for all of these numbers will help establish credibility.
    Distribution Strategy
    • Explains your distribution strategies and what makes these strategies better than the alternatives
      • If you plan to use e-commerce, you should include all the costs associated with maintaining a website and accepting payments over the Internet.
    Promotions Strategy
    • Answers the following key questions:
      • As a new entrant into the market, must you attract your customers away from your competitors they currently buy from or will you be creating new customers for your product or service (i.e. not attracting customers away from your competitors)?
      • If you are attracting customers away from competitors, how will these rivals respond to the threat you pose to them?
      • If you intend to create new customers, how will you convince them to reallocate their dollars toward your product or service (and away from other things they want to purchase)?
      • In what ways will you communicate with your targeted customers? When will you communicate with them? What specific messages do you plan to convey to them? How much will this promotions plan cost?
    • Outlines the anticipated responses competitors will have to your entrance into the market, especially if your success depends upon these businesses losing customers to you
      • If your entry into the market will not be a threat to direct competitors, it is likely you must convince potential customers to spend their money with you rather than on what they had previously earmarked those dollars toward. In your business plan you must demonstrate an awareness of these issues.
    • Often maps out your promotional expenditures according to method used and time frame
      • Consider listing the promotional methods in rows on a spreadsheet with the columns representing weeks or months over probably about 18 months from the time of your first promotional expenditure. This can end up being a schedule that feeds the costs into your projected cash flow statement and from there into your projected income statements.
      • If you phone or visit newspapers, radio stations, or television stations seeking advertising costs, you must go only after you have figured out details like on which days you would like to advertise, at what times on those days, whether you want your print advertisements in color, and what size of print advertisements you want.
      • Carefully consider which promotional methods you will use. While using a medium like television may initially sound appealing, it is very expensive unless your ad runs during the non-prime times. If you think this type of medium might work for you, do a serious cost-benefit analysis to be sure.
      • Some promotional plans are developed around newspaper ads, promotional pamphlets, printing business cards, and other more obvious mediums of promotion. Be certain to, include the costs of advertising in telephone directories, sponsoring a little league soccer team, producing personalized pens and other promotional client give-always, donating items to charity auctions, printing and mailing client Christmas cards, and doing the many things businesses find they do on-the-fly. Many businesses find it to be useful to join the local chamber of commerce and relevant trade organizations with which to network. Some find that setting a booth up at a trade fair helps launch their business.
      • If you are concerned you might have missed some of these promotional expenses, or if you want to have a buffer in place in case you feel some of these opportunities are worthwhile when they arise, you should add some discretionary money to your promotional budget. A problem some companies get into is planning out their promotions in advance only to reallocate some of their newspaper advertisement money, for example, toward some of these other surprise purposes resulting in less newspaper advertising than had been intended.

    Financial Plan

    • Contains financial statements
    • Also includes
      • Various funding options and exit strategies for potential investors
      • Business valuation (be cautious not to over value your business)
      • Break-even analysis

    Business Valuation

    There are a multitude of sophisticated business valuation methodologies.  A rule of thumb for business valuations is a multiple of its earnings.  For example, if the chosen multiple is five and the business’ earnings before taxes are $55M, the business’ valuation would be approximately $275M.

    Break-Even Analysis

    Break-Even Point = FC/(P-VC)

    • FC = Fixed Costs
    • P = Unit Price
    • VC = Variable Cost

    Example: If the business’ total fixed costs are $1,000,000.00, it costs $5.00 to produce the widget, and the business sells the widget for $7.00, the break-even point is 500,000 widgets.

    • You will most certainly need to make monthly cash flow projections from business inception to possibly three years out. Your projections will show the months in which the activities shown on your fixed capital and working capital schedules will occur. This is nearly the only way to clearly estimate your working capital needs and, specifically, important things like the times when you will need to draw on or can pay down your operating loans and the months when you will need to take out longer-term loans with which to purchase your fixed assets. Without a tool like this you will be severely handicapped when talking with bankers about your expected needs. They will want to know how large of a line of credit you will need and when you anticipate needing to borrow longer-term money. It is only through doing cash flow projections that you will be able to answer these questions. This information is also needed to determine things like the changes to your required loan payments and when you can take owner draws or pay dividends.
    • Your projected cash flows are also used to develop your projected income statements and balance sheets.


    Pro forma Cash Flow Statements

    Pro forma Income Statements

    Pro forma Balance Sheets

    Investment Analysis

    Projected Financial Ratios and Industry Standard Ratios

    Critical Success Factors (Sensitivity Analysis)



    List of Items a Business May Need to Purchase


    • Business license
    • Registration for name, etc.
    • Domain name registration
    • Initial product inventory
    • Signage
    • All the little things like curtains/blinds, decorations, microwave for staff room, etc.
    • All the things needed to run the business from day #1 (like cutlery, plates, cooking pots, table settings etc. for restaurants; like towels, soap, etc. for gyms; like equipment and so on for manufacturing and service places)
    • Set-up and testing of new facilities—new factories and offices do not operate at peak efficiency for some time after start-up because it takes time for the new systems to kick into high gear
    • Professional services needed
    • Lawyer’s fees to make sure agreements are solid
    • Graphic designer or design company needed to develop visuals
    • Accounting firm needed to set up initial systems
    • Insurance—maybe not a direct cost to this one to account for


    • Accounting system software
    • Computer, printer, other things needed like scanner
    • Office furniture
    • Initial office supplies—paper, pens, etc.
    • Telephones
    • Internet/wifi
    • Microwave and coffee maker and similar supplies for staff room or coffee room
    • Bank fees—business banking is normally not free—might also need to have business cheques

    Customer Interaction

    • Cash register
    • Loyalty cards/system


    • Safety equipment (fire extinguishers, AED)
    • First aid
    • Security systems
    • Equipment maintenance
    • Janitorial services and cleaning supplies
    • Bathroom supplies—toilet paper, soap, towels
    • Membership costs for various associations, including the local chamber of commerce, any professional associations for the relevant industry, etc.
    • Subscriptions for things like important trade publications, etc.
    • Shelving and storage systems
    • Even when not full restaurant, operations like coffee shops still require equipment like dishwasher


    • Safety—prior to start-up and ongoing and for new employees


    • Ads, travel expenses—flights, hotels, taxi rides, meal allowances, etc.—to recruit people through interviews, meeting meals, set up with real estate agents, etc.


    • Website development
    • Costs for setting up and managing social media (can take a lot of an employee’s time)
    • Grand opening costs


    • If buying, include property taxes and all utilities in cash flows and income statement and include building maintenance and maybe build up a reserve fund to pay for things like future roof repairs and needed renovations and upgrades
    • If renting/leasing, include rental/least cost and whatever utilities are not included in rental/lease payment


    • Construction
    • Plumbing
    • Electrical
    • Utility hookups
    • Inspections
    • Shelving
    • Interior signage
    • Fencing, parking lot, exterior lighting, other exterior things

    Risk Management

    • Insurance (need to choose the types needed)
    • Training costs
    • Things like snow removal, de-icing sidewalks, etc.

    Chapter Summary

    This chapter described the basic elements of a comprehensive business plan.

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