Writing a business plan
		Estimating capital needs
		Obtaining enough capital
		Debt versus equity
		Financial leverage
		Operating leverage
		Leasing versus buying
		Capital budgeting
		SBA loan programs

Writing a business plan is an important early step in starting a business. It doesn't matter whether you are buying an existing business, buying a franchise, or starting a business from scratch. A business plan adds the necessary meat to the skeleton of a business idea.

A business plan allows prospective lenders and investors to evaluate your request for funds. Even the most successful of entrepreneurs have a business plan. According to the U.S. Small Business Administration (SBA), the core elements of a business plan include:

• Description of business. A description of your business explains your product or service in clear terms. It includes the name of your business, address, and a list of owners. A description includes the legal form of ownership of the business and the state where it is registered. (The three major forms of business ownership are corporations, partnerships, and sole proprietorships.) If your business is a corporation, a description will also identify the board of directors.
  
  
• Marketing plan. A marketing plan explains who your target customers are and how you wish to sell to them. It includes an analysis of customer characteristics, product pricing, and a strategy to increase the number of new customers and retain existing ones. A marketing plan also discusses advertising and an analysis of your anticipated competitors.
  
  
• Management and staffing plan. You will need to hire other managers and employees as your business grows. A management and staffing plan identifies: 1) who you intend to hire; 2) what responsibilities you intend to give them; 3) and what forms of compensation you plan to provide. If you plan to buy a life insurance policy for key personnel, include this in the plan as well.
  
  
• Operational plan. An operational plan explains the day-to-day operations of your business—hours of operation, manufacturing schedule, emergency and back-up procedures, etc.
  
  
• Financial data. Financial data is perhaps the most important element of a business plan. The SBA recommends that you include the following financial data in a business plan:
  
  
• Loan applications. When you seek to raise capital for your business, a prospective lender or investor will ask to see your business plan. When you submit a loan application or request for funds, adding a business plan to the request shows that you have a strategic focus on running the business. This focus is reassuring to lenders and investors.
  
  
• Start-up and operating budgets. If you start a business from scratch, you will not have any profits to invest. You will need start-up funds to buy the necessary fixed assets to begin business. After your initial acquisition, you need to estimate an operating budget for your business. Until it is earning enough to cover an operating budget, your business will likely rely on other funds (or your personal savings) to pay the operating expenses.
  
  
• Balance sheet. A balance sheet is a graphical representation of your company's assets, liabilities, and equity at a given point in time. Through a process called articulation, the balance sheet is related to the other two major types of financial statements, the income statement and cash flow statement. Including a set of forecasted financial statements shows a basic command of accounting principles that is reassuring to lenders or investors.
  
  
• Break-even analysis. A break-even analysis looks at various combinations of sales and fixed costs necessary for your company to begin earning a profit. In addition to fixed costs, businesses incur costs that vary in proportion to how much business they do. These costs are called variable costs. A break-even point is the volume of sales necessary to cover your fixed and variable costs.
  
  
• Forecasted income. The income statement is one of the two financial statements that connect the period of time between two balance sheets. An income statement measures sales, expenses, and profit or loss over the reporting period. The most common length used for a full reporting period is 12 months.
  
  Since you don't know what your income statement will look like in the future, you have to make a forecast. Expect a prospective lender or investor to question your assumptions. To counter such scrutiny, make realistic forecasts. When the economy is strong, your forecasted sales growth is likely to be higher than in a slow economy.
  
  
• Forecasted cash flows. The cash flow statement is the other financial statement that connects the balance sheet between two points in time. The cash flow statement measures cash inflows and cash outflows from three business areas: operations, investing, and financing.
  
  

Next Topic: Estimating capital needs