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The 3 Part Business Plan

The 3 Part Business Plan

Author: James Howard

Identify the purpose and components of a business plan.

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The Three Part Business Plan

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Hello and welcome to this tutorial on the three-part business plan. Now as always with these tutorials, please feel free to fast forward, pause, or rewind as many times as you need in order to make the most out of the time that you spend here. So when was the last time you had a big event, a big party or something that you hosted? Now when you were getting ready for it, did you just wing it or did you have a plan? Or have you done both?

Chances are if you had a plan and a goal in mind, the process went a lot smoother. Well, in this lesson, we're going to talk about an overview of a business plan. We're also going to look at the goals and objectives for those business plans. We're going to look at the sales forecast and the financial plan.

The key terms for this lesson are going to be business plan. So let's go ahead and get started with business plan. Now a business plan is simply defined as a document that outlines the plan for a business. Simple enough.

Now the business plan is a very valuable tool that a business has. What it does is it communicates to its investors, tells them what they're going to do with the money that they've invested. It also helps out with management. It helps set up monitoring and tracking of different goals and objectives that the business may have. It gives them those key indicators if they're succeeding or failing.

It helps with planning. It provides timelines. It provides milestones. And it also allows you to compare the growth of different projects throughout their lifespan.

Now a business plan has three main parts. They are goals and objectives, sale forecast, and the financial plan. Now it may include other information, such as the product description or product differentiation to give the people you're communicating to-- the investors-- a better idea of what it is that you're doing. And these can be absolutely critically important.

Goals and objectives. Now goals and objectives can greatly differ, depending on if it's a larger company or a smaller company. Goals are those long-term targets that we want to hit. And objectives are those shorter term targets. And most of the time, objectives will simply be ways or steps to achieve the goals that we want to accomplish.

Now goals should be smart. They should be specific, measurable, achievable, relevant, and timely. Let's say, for instance, that I own a business and I want to be the number one revenue generator in my town for my particular product category. And I'm only going to give myself one year to do it.

So I am going to be the number one seller of widgets in my hometown by the end of the year. It's specific. It's measurable. It's achievable. It's relevant to my business, and its timely.

Now a goal for that may be that I want to be franchising my business later on and showing success as that objective can be a big step on the way to that goal. Sales forecasts are split up into sales category, the number of units, the unit price I'm going to sell that product at, the total sales, and the monthly and the annual totals. And what this allows me to do is track my sales throughout the year.

It's also based on a lot of research. Businesses will look at the current market and try to understand the financial strengths and weaknesses of their own business and predict how their business is going to compete within the marketplace. Well, let's take a look at a template for a sales forecast.

So here I have a sales forecast. And you can see, it's split up among the different months, but it also covers the entire year to see how I'm doing as a business overall throughout the year and for each individual product or product category that I have. I have my monthly totals and I also use the end of year to compare to how I did last year and the year before and the year before. So I can use this information now to make long-term forecasting for the years that follow.

And so here, we can see what a graph might look like made from that template we showed you earlier. For instance, here, you can see category one. Category one is a blue.

Starting in June of 2014, we have 20. We're moving up and kind of holding steady. And then around October, we're expecting a dip back down to 20 or so. It could be a seasonal issue with the product.

And from there, various factors may be involved where we're going to really increase sales or output. And we anticipate ourselves moving forward and growing from there.

For category two, it's a slightly different story. We can see we're starting off at around 35 and moving steadily downward all the way to the end of the year. Now the reason someone might chart this is because you may be discontinuing that product by the end of the year.

Now a financial plan is a summary of what investments are needed. It also takes a look at the break-even analysis. How much product do I have to sell at a particular price in order to break even to cover all of my costs? And as you can imagine, this is a pretty big deal for individual business.

It also contains revenue projections. And this is based, at least in part, on sale projections or sales forecast. So the better job I do forecasting my sales, the better I'm able to predict accurately my revenue for follow on months and years.

Venture capitalists will want to see this particular document. They're not going to hand people money or hand businesses money without a sound financial plan and business plan. Well, who are venture capitalists?

Well, venture capitalists are high-risk investors who provide funding for startups and small businesses. Now venture capitalists are absolutely critical to startups. Startups typically have low access to capital and they have high costs right at the beginning. So they need a lot of money to get started and to keep going. Venture capitalists provide the capital that are needed for those startups to cover those high costs because they'll make riskier investments than traditional lending institutions, like banks will.

Small business investment companies is something that was created by Congress back in 1958. Now these are privately owned and managed, and what they primarily do is serve as a source of venture capital for small business. And that way they can help fuel growth for the business.

Now they're licensed by the Small Business Administration to provide long-term loans, not short-term loans. Maturities of at least five years. So having these small business investment companies around is a great resource for small businesses to be able to fund their expansions and fund their startups.

So let's recap. We covered an overview of the three-part business plan. We looked at goals and objectives. How they should be smart, specific, measurable, achievable, relevant, and timely.

We also looked at a sale forecast, why it's important, and the different categories that are involved within a sales forecast. And lastly, we looked at that ever-important financial plan. If you want to be in business and you want to generate capital besides sales to start the business up, to cover unexpected costs, you're going to need to have a solid financial plan that venture capitalists or banks could take a look at before they make that decision to invest money in your.

Well, as always, I want to thank you for spending some time with me. And have a great day.

Terms to Know
Business Plan

A document that outlines the plan for a business.