Creating a Business Plan NarrativeSave this to your computer as a template, and then make your changes to the working file. As you go thru this plan, you’ll replace suggestions with actual content.

Please note: Some information will be repetitive. This is intentional: Not many people will read the entire document. Repetition of certain information will help the reader retain it.

You will need to hit certain highlights in several places & several different ways.

There are two primary components to a business plan:1. What you’re planning to do - The Projected Financials2. How you’re planning to do it – The Financial Assumptions and the

Narrative

Sounds simple huh? It’s not, but as you go thru the steps to create a detailed financial plan, you will work thru important issues you may not have considered. This is one of the reasons banks and investment bankers like to see Business Plans: They are evidence that you have thought things thru and you have a strategy.

This business plan is designed to be integrated with the financial modeling tool offered at www.ProjectedFinancialStatements.com. The financial tool is designed to be a stand-alone product, and it is the preferred format for bank loans of $1,000,000 or less. If you are going after Private Equity Financing, or a large bank loan, you’ll need the financial projection plus this narrative.

To integrate this narrative with the financial projection, simply use this table of contents instead of the one offered with the projection.

Read this entire narrative before you begin: Take notes as you read in order to formulate a strategy for preparing a meaningful business plan.

If you need further assistance: There are several ways to get assistance with creating a business plan:

Do-it-yourself help: We recommend a book titled Saving Without Sacrifice – Small Business Edition. This book is designed to guide someone thru the process of building a business, expanding a business, or helping a business operate more efficiently.

Personal Assistance: If you need more assistance, there are a couple options we recommend: Contact your CPA: If you have a CPA, they could be very helpful in

preparing a business plan with you. Several firms have already begun using ProjectedFinancialStatements.com to prepare business plans for their clients because our tools are very easy to use – Easy if you are a financial professional.

Contact us: Please also consider contacting us if you would like help preparing a business plan. We will find a financial professional in your area who works with our software, or we will send someone from our office.

We wish you the best of luck and success with all your business endeavors!

Small Company Tools.comwww.ProjectedFinancialStatements.com

Please note! This narrative was purchased as a single company license. You do not have permission to sell it or use it in any way for business consulting purposes without express written permission from Gruber and Company, Inc.

Detailed Business PlanIncluding

Financial and Cash Projections

Your Business Name

AddressCity, ST ZIP Code

TelephoneFax

E-Mail

Company NameBusiness Plan

Table of Contents

Executive Summary

General Company Description

Products & ServicesProduct Features, Benefits

Marketing PlanIndustry Information, Customers, Competition, Strategy, Promotional Budget, Sales Forecast

Operational Plan

Management and Organization

Startup Expense and Capitalization

Appendix

Explanation of Ratios Used in the Financial Projection

Footnotes

Line and Bar Chart Summary of Projected Financial Data

Financial Projection:Comparative Summary Financial Statements:

Actual Activity thru December 31, 2007Budgeted & Projected Activity for 2011, 2012, 2013 & 2014Balance Sheets, Income Statements, Statements of Cash Flow, General and Administrative Expenses

Detailed Budgeted Financial Statements:For the 24 months ended December 31, 2012Balance Sheets, Income Statements, Statements of Cash Flow, General and Administrative Expenses

Assumptions for the Detailed Budgeted Financial Statements:Detailed assumptions by line itemBudgeted Employee HeadcountMonthly Sales: Calculation and ScheduleDepreciation Schedule

Ratio Analysis

Executive Summary

Write this section last.This should be one page or less.

Explain what you plan to do, and how you plan to do it in a concise and professional manner. Try to elicit enthusiasm from your intended audience. This is the basic information you want to share:

The fundamentals of the proposed business The product The potential Who are your customers? Concise outlook for your industry and your business territory

Clearly state how much capital you need, where it’s coming from, and how you intend to use it.

General Company DescriptionThis should also be a one page summary. Much of this information will be covered in detail later. If the Exec. Summary is done last, this should be done next to last.

What industry will you be in? Describe it…Growth industry? etc. Where are you located? What will you do? Describe your most important company strengths and core competencies. What factors will make the company succeed?

Mission Statement: Optional: Some companies try to set a corporate tone with a mission statement, and some clients like to read mission statements.

Company Goals and Objectives: You define what the goals are. Are you interested in growing to a certain level? Creating a certain level of profit? Positioning yourself in a certain way?

Business Philosophy: What is important to you in business? What is your basic approach or emphasis regarding making sales, serving customers, employee relations etc..

Products and ServicesDescribe your products and/or services in detail including their superiority. Keep drawings and graphs at ½ page or smaller. How does your product or service stand out?What are the pricing structures of your products and/or services?How will your customers’ react to your product? IE: Have you thought about what your customers will think of your product?

Features and BenefitsList all of your major products or services.For each product or service:

Describe the most important features. What is special about it? Describe the benefits. That is, what will the product do for the customer?

Note the difference between features and benefits, and think about them. For example, a house that gives shelter and lasts a long time is made with certain materials and to a certain design; those are its features. Its benefits include pride of ownership, financial security, providing for the family, and inclusion in a neighborhood. You build features into your product so that you can sell the benefits.What after-sale services will you give? Some examples are delivery, warranty, service contracts, support, follow-up, and refund policy.

Marketing PlanMarket research will help demonstrate that you’re on track. Use the business planning process as your opportunity to uncover data, to question your marketing efforts, and to improve your chances of success.

Market researchThere are two kinds of market research - primary and secondary:Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available in public libraries, industry associations, chambers of commerce, from vendors who sell to your industry, and from government agencies.Most librarians are pleased to guide you through their business data collection. You will be amazed at what is there. There are more online sources than you could possibly use. Your chamber of commerce has good information on the local area. Trade associations and trade publications often have excellent industry-specific data.

Primary research means gathering your own data. For example, you could do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus-group interviews to learn about consumer preferences. Professional market research can be very costly, but there are many books that show small business owners how to do effective research themselves.

Be as specific as possible in your marketing plan. Give statistics, numbers, and sources. The marketing plan supports Projected Sales – the most important figure in the entire business plan.

Industry InformationFacts about your industry:

What is the size of your market? Is there a physical territory (like a franchise agreement)?

What percent share of the market will you have? (Skip this if you don’t plan to go after 5% or more).

Trends in target market—growth trends, trends in consumer preferences, and trends in product development.

Growth potential and opportunity for a business of your size. What barriers do you face to enter this market? How will you overcome

the barriers? Some typical barriers are:o High initial capital requirements (production, marketing, etc.)o Consumer acceptance and brand recognitiono Education and/or skill level of the local workforce.o Training costso Technologyo Unionso Transportation costs and logistics.o Local tax structure (Real Estate, Income, Sales)

How could the following affect your company?o Change in technologyo Change in government regulationso Change in the economyo Change in your industry

CustomersIdentify your targeted customers, their characteristics, and their geographic locations, otherwise known as their demographics.The description will be completely different depending on whether you plan to sell to other businesses or directly to consumers. If you sell a consumer product, but sell it through a channel of distributors, wholesalers, and retailers, you must carefully analyze both the end consumer and the middleman businesses to which you sell.You may have more than one customer group. Identify the most important groups. Then, for each customer group, construct what is called a demographic profile:

Age Gender Location Income level Social class and occupation Education Other (specific to your industry) Other (specific to your industry)

For business customers, the demographic factors might be: Industry (or portion of an industry) Location Size of firm Quality, technology, and price preferences Other (specific to your industry) Other (specific to your industry)

CompetitionList your major competition – Companies as well as competing products. How will your products or services compare with the competition? How will your product compare in a good economy v. a bad economy?You could use a table or a narrative to compare yourself against your competition. Consider using the table below followed by a brief narrative to explain the key points illustrated by the table.

Competitive AnalysisProducts Price Quality Selection Service Reputation Location Advertising

Level of Importance

Our Company

Competitor

Competitor

Competitor

Products Price Quality Selection Service Reputation Location Advertising

Competitor

Competitor

Competitor

Competitor

Competitor

Competitor

Consider getting an objective person to prepare the assessment for your company. You want an honest assessment of your firm's strong and weak points. Use the business plan to explain which stated criteria is important as well as how you plan to succeed at those criteria that are most important to the market.

You must decide what kind of continuum to use: 1 – 5; 1 – 10; S or U. Don’t be more detailed than your research can support. IE: Can you justify the difference between a 6 and a 7? If not; use a limit of 5 (or 3) instead of 10.

StrategyNow that you have systematically analyzed your industry, your product, your customers, and the competition, you should have a clear picture of how your company will distinguish itself.Use one paragraph to define your place in the industry.

PromotionHow will you get the word out to customers?Advertising: What media, why, and how often? Why this mix and not some other?Have you identified low-cost methods to get the most out of your promotional budget?Will you use methods other than paid advertising, such as trade shows, catalogs, dealer incentives, word of mouth (how will you stimulate it?), and network of friends or professionals?What image do you want to project? How do you want customers to see you?In addition to advertising, what plans do you have for graphic image support? This includes things like logo design, cards and letterhead, brochures, signage, and interior design (if customers come to your place of business).Should you have a system to identify repeat customers and then systematically contact them?

Promotional BudgetHow much will you spend on the items listed above?Before startup? (These numbers will go into your startup budget.)Ongoing? (These numbers will go into your operating plan budget.)

PricingExplain your method or methods of setting prices. For most small businesses, having the lowest price is not a good policy. It robs you of needed profit margin; customers may not care as much about price as you think; and large competitors can under price you anyway. Usually you will do better to have average prices and compete on quality and service. Does your pricing strategy fit with what was revealed in your competitive analysis?Compare your prices with those of the competition. Are they higher, lower, the same? Why?How important is price as a competitive factor? Do your intended customers really make their purchase decisions mostly on price?What will be your customer service and credit policies?

Distribution ChannelsHow do you sell your products or services?

RetailDirect (mail order, Web, catalog)WholesaleYour own sales forceAgentsIndependent representativesBid on contracts

Sales ForecastNow that you have described your products, services, customers, markets, and marketing plans in detail, it’s time to attach some numbers to your plan. This narrative should support the forecast illustrated in your financial summary

The Sales forecast is the most important number in the entire business plan. You should provide as much support as possible for these numbers. Your projection should be based on your historical sales, your listing of repeat customers, existing sales agreements, the marketing strategies that you have just described, your market research, and industry data, if available.

You may want to do two forecasts: a "best case", which is what you expect based on your research, and a "worst case" based on what you can reach no matter what happens. The numbers used in your projection should approximate the worst-case scenario if possible. This will give the reader room to speculate all the good thing that might happen.

Remember to keep notes on your research and your assumptions as you build this sales forecast and all subsequent spreadsheets in the plan. You will need that research to answer questions from the bank and/or potential investors.

Operational PlanExplain the daily operation of the business, its location, equipment, people, processes, and surrounding environment.

ProductionHow and where are your products or services produced?Explain your methods of:

Production techniques and costs Quality control Customer service Inventory control Product development

LocationIs location important for your business model? What qualities do you need in a location? Is your location important to your customers? If yes, how?If customers come to your place of business:Is it convenient? Parking? Interior spaces? Not out of the way?Is it consistent with your image?Is it what customers want and expect?Where is the competition located? Is it better for you to be near them (like car dealers or fast food restaurants) or distant (like convenience food stores)?

Describe the type of location you’ll have.Physical requirements:

Amount of space needed, including inventory needs. Type of building Power and other utilities

This analysis will support your estimated rent and utilities.

Access:Is it important that your location be convenient to transportation or to suppliers?Do you need easy walk-in access?What are your requirements for parking and proximity to freeway, airports, railroads, and shipping centers?Include a drawing or layout of your proposed facility if it is important, as it might be for a manufacturer.Construction: Most new companies should not sink capital into construction, but if you are planning to build, costs and specifications will be a big part of your plan.Cost: Estimate your occupation expenses, including rent, but also including maintenance, utilities, insurance, and initial remodeling costs to make the space suit your needs. What will be your business hours?

Licensing, Legal, etc.Briefly describe the requirements and estimated cost for:

Licensing and bonding requirements

Permits Health, workplace, or environmental regulations Special regulations covering your industry or profession Zoning or building code requirements Insurance coverage Trademarks, copyrights, or patents (pending, existing, or purchased)

Personnel Type of labor (skilled, unskilled, and professional) Where and how will you find the right employees? Quality of existing staff Pay structure Training methods and requirements Expected organizational framework – Use either a narrative or an org.

chart. What will be done by employees, and what will be delegated to

contractors?

Credit Policies Do you plan to sell on credit? Do you really need to sell on credit? Is it customary in your industry and

expected by your clientele? If yes, what policies will you have about who gets credit and how much? How will you check the creditworthiness of new applicants? What terms will you offer your customers; that is, how much credit and

when is payment due? Will you offer prompt payment discounts? (Hint: Do this only if it is usual

and customary in your industry.) Do you know what it will cost you to extend credit? Have you built the

costs into your prices?

Managing Your Accounts ReceivableWill you sell on credit? If so, you should do an aging to keep track of how much money is outstanding. You should also have a written policy for dealing with slow-paying customers: How often do you invoice clients? When do you send statements and reminder letters (if at all)? When do you make a phone call? Will you charge interest for slow payment of bills?

You should decide how much time and money to spend on your collections policy. There can be arguments made for two schools of thought:

Spend a lot and diligently stay on top of your AR. Keep track of it, but don’t develop an expensive collections process.

Managing Your Accounts PayableYou should also age your accounts payable, what you owe to your suppliers. This helps you plan whom to pay and when. Paying too early depletes your cash, but paying late can cost you valuable discounts and can damage your credit. (Hint: If you know you will be making a late payment, call the creditor before the due date.)

Do your proposed vendors offer prompt payment discounts? It’s almost always a good idea to take advantage of payment discounts – In many cases; you can earn over 100% interest annually. However; don’t compromise your capital availability by taking advantage discount terms. Early payment discounts are often offered by companies that are undercapitalized.

Management and OrganizationWho will manage the business on a day-to-day basis? What experience does that person bring to the business? What special or distinctive competencies? Is there a plan for continuation of the business if this person is lost or incapacitated?If you’ll have more than 10 employees, create an organizational chart showing the management hierarchy and who is responsible for key functions.Include position descriptions for key employees. If you are seeking loans or investors, include resumes of owners and key employees.

Professional and Advisory SupportList the following:

Board of directors Management advisory board Attorney Accountant Insurance agent Banker Consultant or consultants Mentors and key advisors

Provide the professional Qualifications for Each Senior Executive. Either describe their qualifications in this section, or include their resumes in the appendix.

Startup Expenses and CapitalizationYou will have many startup expenses before you even begin operating your business. It’s important to estimate these expenses accurately and then to plan where you will get sufficient capital. This is a research project, and the more thorough your research efforts, the less chance that you will leave out important expenses or underestimate them.

Even with the best of research, however, opening a new business has a way of costing more than you anticipate. There are two ways to make allowances for surprise expenses:

The first is to add a little “padding” to each item in the budget. The problem with that approach, however, is that it destroys the accuracy of your carefully wrought plan.

The second approach is to add a separate line item, called contingencies, to account for the unforeseeable. This is the approach we recommend.

Talk to others who have started similar businesses to get a good idea of how much to allow for contingencies. If you cannot get good information, we recommend a rule of thumb that contingencies should equal at least 20 percent of the total of all other start-up expenses.

Explain your research and how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans. Also explain in detail how much will be contributed by each investor and what percent ownership each will have.

Appendix

The following information is essential in most cases: Historical and Projected Financial Statements. Personal Financial Statement for Each Major shareholder. Tax returns for each major shareholder - if you are seeking bank

financing. Business tax returns – Assuming your company has a financial history.

You should also consider including the following information: Brochures and advertising materials Industry studies Blueprints and plans Maps and photos of location Published articles Detailed lists of equipment owned or to be purchased Copies of leases and contracts Letters of support from future customers Any other materials needed to support the assumptions in this plan Market research studies

Explanation of Ratios Used inthe Financial Projection

(Include this section if you are including ratios in your business plan, which we highly recommend. Our premium financial modeling template includes all ratios mentioned in this Narrative template. Feel free to use this section verbatim if you are using that product. We also provide a list of ratios – and instructions – on our website free of charge. You can use this information to add tools to your business plan if you like.)

This is an explanation and definition of the ratios included in our financial statement analysis. Ratio analysis can be an objective way to compare financial data to other companies or to measure the relative financial stability of a business.

Liquidity RatiosLiquidity ratios indicate the company’s ability to meet its short term obligations. The Current Ratio is calculated by dividing current assets by current

liabilities. If current assets are greater than current liabilities, the current ratio will be greater than 1.0.

Average Collection Period: This is an estimate of how many days it takes the Company to collect Accounts Receivable. This is literally the Revenue/Accounts Receivable ratio restated in terms of days. This ratio can indicate the Companies efficiency in making collections and/or its customer satisfaction (among other things) when it is compared to industry standards.

The Average Collection Period is also known as an Activity Ratio. Other activity ratios include Inventory Turnover (or COGS / Inventory), Payables Turnover, and Revenue/Working Capital.

Coverage RatiosCoverage Ratios measure the Company’s ability to meet certain obligations and/or the Company’s ability to generate earnings over and above certain expenses or fixed costs. Times Interest Earned: Also called the Interest Coverage ratio. The

formula to calculate Times Interest Earned is Net Income divided by Interest Expense.

Net Income + Non-cash Expenditures / Current Portion of Long-term Debt: This ratio measures the Company’s ability to pay its short-term debt with cash generated from Operations. IE: ‘Net Income + Non-cash Expenditures’ is a good estimate of how much cash was generated from Operating Activities.

Leverage RatiosLeverage ratios attempt to measure either the effectiveness or the extent of a Company’s use of certain assets, liabilities or investments. Leverage ratios vary greatly from one industry to another, so they are more effectively understood when compared to industry standards.

Fixed Assets / Tangible Net Worth: Comparing the Company’s Tangible net worth (equity – intangible assets) to the book value of fixed assets will indicate if the Company is heavily invested in fixed assets. Falling below industry standards could indicate that the company needs to upgrade its equipment, or that the Company re-invests a higher level of earnings than other Companies in the industry.

Debt to Tangible Net Worth: Also known as Debt-to-Equity in many cases: A high debt to equity ratio may indicate that the company is having a hard time meeting its obligations.

Operating RatiosOperating ratios typically focus attention on some aspect of Earnings or Sales in order to draw a conclusion about the Company’s ability to generate income.

Gross Profit Margin: Sales - Cost of Goods Sold / Sales. This ratio measures what percentage of each sale is applied toward Gross Profit. In theory; The Gross Profit Margin expresses the portion of marginal sales that will be added to net income before taxes, after the Company has generated enough sales to cover fixed costs and overhead.

EBT/Tangible Net Worth: Earnings Before Taxes over Tangible Net Worth. This Ratio measures the Pre-tax earnings as a percentage of how much shareholders have invested in the Company. Publicly traded companies more often use Return on Equity and Earnings per share to express this concept.

EBT/Total Assets: This Ratio measures pretax earnings in comparison to total assets.

Fixed Asset turnover ratio. Sales / Fixed Assets. This ratio provides a multiple that can be compared to industry standards to measure how much Sales are being generated in relation to the Company’s investment in Fixed assets.

Total Asset Turnover ratio: Sales / Total Assets. This ratio is similar, in concept, to the Fixed Asset Turnover Ratio, except Total Assets are used as a comparison.

E.B.I.T.D.A.: Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). This is supposed to measure the company’s ability to generate cash-flow to pay its obligations.

Expense to Revenue RatiosExpense to Revenue Ratios are also referred to as Common-Size Analysis. Expenses are expressed as a percentage of total sales. Common-Size Analysis is a very common tool used to compare a company’s activity with prior year activity, with other companies, and with industry averages.

% Depreciation, Depletion, and Amortization / Revenue: This measures the typical non-cash expense items to total sales.

% Officer’s &/or Owner’s Compensation / Revenue: This is a very important item to note for privately held company’s because; this Percentage can vary widely from one company to another; and it directly effects Net

Income. IE: If Officer’s Compensation is 35% of Sales and Net Income was at a 2% loss, it may be wrong to assume that the Company is not profitable.

Using Ratios as a Predictor of Success or Failure.Lenders and financial analyst will often select a list of ratios and assign a relative point value to each one. This is done to attempt an objective assessment of a particular company. One popular tool of this type is the Altman's Z-score for Privately Held Firms - A variation of the original Z-score formula developed by Dr. Edward I. Altman in 1968.

ALTMAN'S Z-SCORE for Privately Held Firms: This series of ratios is used to predict a bankruptcy up to 2 years before it happens. This widely accepted tool adds the results of 5 financial ratios. The resulting total is used to assess the company's financial viability as a going concern:

o Working Capital / Total Assets. o Retained Earnings / Total Assets. o Earnings Before Interest and Taxes / Total Assets. o Market Value of Equity / Book value of Total Debt. This is not

a readily available number for privately held companies, so I often use a 'rule of thumb' valuation to calculate the Market Value of Equity.

o Net Sales / Total Assets.

Add the results of these 5 ratios together. The resulting total is then assessed based on a pre-determined scale, and based on the industry you are in:

Altman's Z for Private Firms - Predetermined Cut-offs:

Non-manufacturing

ManufacturingManufacturing:Publicly traded

Bankrupt Less than 1.1 Less than 1.23 Less than 1.81

Zone of Ignorance 1.1 to 2.6 1.23 to 2.9 1.81 to 2.99

Non-BankruptGreater than 2.6

Greater than 2.9

Greater than 2.99