Kostecke CPA

Questions That a Business Plan Should Answer for a Startup Business

Business planThis is a set of questions to consider when you are developing a business plan for an entirely new business, or a new product or service that you are considering adding to an existing business.

Operating Plan

The operating plan answers the fundamental questions of what your business will do and how it will be done.

  • What goods and services will the business provide?
  • Where is the business on the supply chain? Does the business sell to other businesses, end users, both?
  • Will the company manufacture or provide services directly, or will that be contracted out?
  • Who will be the key business partners for providing goods and services (i.e. vendors, distribution, legal, accounting, etc.)?
  • Will the business have a physical office or building, or will it be virtual?
  • Will the business buy, construct or rent physical space?
  • What equipment, software, licenses, etc. are required?
  • How will products and services be delivered?
  • What is the territory for delivery of products and services? Will this change over time or stay the same?

Competitive Analysis

You need to have a good understanding of who your competition is. By studying your competition closely, you can learn from their mistakes and successes, and understand the marketplace better. Remember, you have competition, even if you are offering something that is brand new.

  • Who are the business’s competitors and (potentially, if relevant) where are they located?
  • Does the location or placement of your competitors impact your business?
  • How does the competition market to their customers?
  • Are the competition’s product and service offerings similar to your business?
  • Does the competition offer products/services that your business does not?
  • How big of a threat is your business to the competition? What are the possible responses the competition may take?
  • What business practices does the competition have as far as marketing, pricing, discounts, promotions, payment terms, warranties, delivery, packaging, human resources, operations, etc.?
  • What is the competition’s reputation with customers and vendors?
  • What are the strengths and weaknesses of the competitors’ products and services?
  • How will your business differentiate from the competition? What will attract customers to your product/service?
  • Who will sell the business’s products and/or services? Employees? Contract sales? You? Nobody because customers will ask for it.

Marketing Plan

This section describes who your customers are, how you will make your business known to your customers, and how you will attract and keep business. Elements of the marketing plan address elements identified in the competitive analysis above.

  • Who are the business’s targeted customers? What characteristics do they have?
  • What is the size of the market for the products/services the business will offer?
  • What is the customer sales cycle? Will there be frequent, repeat business or will customers buy once or twice in a lifetime?
  • How will customers find the business?
  • How will the business/sales team find customers?
  • If there is repeat business how will customers be retained?
  • Will the business use advertising? Where? How often?
  • Will the business have an internet website and/or a presence on social media?
  • How will the business set prices for goods/services? Where in the pricing spectrum does the business fit?
  • Will the business offer special discounts or promotions to customers? Will this be routine or for targeted purposes?

Human Resources Plan

Have your heard? People are important for your business. Not only do they buy stuff, they help you too! You should have a good idea of who you will need to help you with your business, whether they’re paid or pro bono.

  • What will be the key roles to be filled in the business? What authorities/responsibilities are identified with each role?
  • Who will fill each key role in the business? What are the time and salary requirements?
  • Will there be employees? What will they do in the business? How many? How much pay/hours?
  • Will the business use contractors? What will they do? How much will they cost?
  • If the business has employees, will benefits be offered such as health insurance, retirement plan and/or profit sharing?
  • Will the business have a Board of Directors, or a Board of Advisors? Who will they be? Will there be structure to the group, i.e. regular meetings, formal responsibilities, etc.? Or will this be more ad hoc?
  • Is there representation on the Board from key disciplines (i.e. small business, banking, finance, legal, technical, IT, etc.)?
  • Will you have (a) partner(s)? Will they have an active role in the business, or be silent investors, or a few of each?
  • What are the implications to the business if a partner or key shareholder leaves or dies? Does the partnership or corporate agreement cover these situations adequately to ensure that the business can continue after this happens?
  • How much do you want to work? Do your work desires and skills match up with the requirements of your business?

Financial Plan

This is where all the pieces come together and you can see if your plan is going to work or not. Whether you’re a Republican, a Democrat, a Libertarian or a Socialist, your business will not survive unless it makes at least enough money to cover its own costs and pay you what you need. This is true whether you sell widgets or you run a “nonprofit” – the business must be sustainable. Financial shortfalls sink more businesses than anything else, so you should plan for things to not go as well as you expect them to just to make sure you have enough to carry you through unexpectedly bad circumstances.

  • What is the startup timeline? How long will it take to get the business up and running?
  • How much money is needed before and during startup? What investments in equipment, inventory, deposits, licenses, agreements, leases, training, etc. are required?
  • How many months after startup until the business reaches breakeven, where ongoing cash inflows are equal to cash outflows?
  • How much cash will the business generate each month prior to breakeven, and each year after that?
  • Where will the funds for paying startup costs and cash flow requirements come from? Investors? Bank loans? Personal loans? Personal savings?
  • What will accounting profit be in the next 3-5 years?
  • What are the key measurements and ratios you will use to track your business and define success? (These should not all be financial, and should include measures such as of strength in the marketplace, progress in obtaining new customers, operating efficiency, etc.)
  • What are the investors’ requirements for return on the business? What are their measures of success?
  • Do you have enough money to sustain your personal life until your business is making enough money to pay you?
  • What form of business will be taken? LLC? Partnership? S-Corp? C-Corp? Etc.?
  • What are the legal and tax requirements of this form of business?

General

  • What are your business’s strengths and weaknesses?
  • How will you capitalize on the strengths of the business?
  • How will you fix or compensate for the weaknesses of the business?
  • What are the major risks the business faces and how have they been planned for and addressed?
  • What size business do you personally want to have?
  • How long do you want to work in the business?
  • What is your exit plan for the business? Is there a transition plan for leadership of the business? Will you sell it? Will you simply pack it up?

 

 
Comments

Thank you for this information. I was beginning to believe that business plans were a waste of time because nobody still understood how to effectively construct one. Too many endlessly convey the “unique” nature of the company’s product or service. Your emphasis on competition, marketing strategy, and skills of the people involved in the organization could revive the lost art of crafting a useful business plan.

Thank you for you comments, Brian. I also believe that a business plan should be more useful for the business owner than for anyone else (see my earlier blog post “Your Business Plan Can Actually Be Useful To You”). I agree with you that you can’t cop out by saying you’re unique. Most of the time there is an aspect of any new business, i.e. similar consumer need being met in a different way, etc., that you can compare to an existing business to test your plan and your financial projections. Anyway, glad you liked it!

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