CHAPTER 1
Why You Need a Business Plan
“In preparing for battle I have always found that plans are useless, but planning is indispensable.” ― Dwight D. Eisenhower By now you have probably convinced yourself of the brilliance of your idea. Heck, you’re so fired up that you won’t let anything stop you. Until that is, you hit your first roadblock. At that point a fork in the road appears and there are two decisions: quit or keep going. The only problem is you have a vague idea of what lies before you when you quit, it might be that same 9 to 5, the old haggard boss, or an endless row of cubicles with your name waiting at one of the desks. However, what you don’t know is what happens if you decide to keep going, that’s a path paved with uncertainty and assumptions. There are a few things that will help you at this point: a) a plan, and b) relentless determination. Truth is, you’ll need both to make it out in the clear. The later of the two will be based purely on your outlook and the choices you make. The former though is an invaluable exercise in providing the right amount of support when you’re looking over the edge and feeling a bit of vertigo. If you stop to think for a moment, looking before you leap can save you a great deal of resources. Sure, it could paralyzes you in fear, but for anyone wanting to start anything, planning provides an invaluable exercise in thinking something through. Oh and when you’re pitching for funding, a business plan is usually the first thing they’ll ask for after your pitch.
In this guide, you’re going to learn everything there is to know about writing your first business plan. Not only will it be the easiest and most comprehensive business plan guide but we guarantee it’ll help you go from concept to planning to taking action.
5 Reasons You Need to Write a Business Plan:
The competitive research you do will force you to come up with new and creative ways to outgrow everyone else
Seeing the big picture will let you see the holes in your thinking early on
You will become intimately acquainted with your customer
Brings everyone on the team together to synthesize a unified vision
It is a prerequisite in most cases to apply for funding Traditionally, writing a business plan gets somewhat of a bad rep amongst the entrepreneurial community. You’ll hear an endless array of reasons as to why it’s useless, not grounded in reality, or won’t add a penny to your pocket. That will be most likely followed by advice along the lines of ‘just go ahead and build it’, ‘get it out in the market’, ‘you won’t know unless you try’, and so on. But as you might have found out first hand, some form of planning usually is a prerequisite for success. It can also save you heaps of money. Lastly, this guide is organized based on the actual structure of the business plan you’ll be writing. Specifically, that will look something like the following:
Cover Letter - Chapter 2
Title Page - Chapter 2
Table of Contents - Chapter 2
Executive Summary - Chapter 2
Company Profile - Chapter 3
Industry Research - Chapter 4
Sales and Marketing - Chapter 5
Operations - Chapter 6
Financials - Chapter 7
Sample Business Plan - Chapter 8 CHAPTER 2
First Impressions
“Early impressions are hard to eradicate from the mind. When once wool has been dyed purple, who can restore it to its previous whiteness?” ― Saint Jerome Despite the fact that the opening section of your business plan is the last thing you’ll work on, it is the first thing anyone looking at your business plan will see. Which is why it’s important to keep these handy pointers in mind when you do get around to working on it. Let’s start with some general guidelines:
Keep it short and to the point, that means making it no longer than 15-20 pages. Your appendix can house all of the other documents you deem essential.
Keep the tone, style, and voice consistent. This is best managed by having a single person write the plan.
Tailor your business plan to your audience. This means keeping in mind that what’s important to a VC may not be on the same list of priorities as a small business loan manager at your local bank. It also means being flexible with the the layout and knowing which sections to prioritize.
What You'll Need to Include Here are the sections with which your business plans should kick things off with, that includes having a:
Cover Letter
Title Page
Table of Contents
Executive Summary Cover Letter The cover letter serves the same purpose that it does when you submit one along with a resume as a job candidate. Actually you can think of the entire process of courting a prospective investor, partner, or initial employees akin to that of job hunting, it has to make sense for both parties. Here are the skeleton elements that you need to make sure to include in this section:
Address of intended recipient
Date
Your Address
Dear ______ (Make sure to have a name!)
Body paragraphs that highlight very obvious facts (ex. that you’re submitting a business plan for your business, which you can describe in a sentence, and what the prospective reader can look forward to reading about in the following pages)
Express your eagerness in hearing back from them and a number where you can be reached
Thank them
Sign off Title Page You definitely don’t want to overdo it on this one. Remember, you never get a second chance to make a first impression. I would recommend keeping this as minimalist as possible, which means no bright neon or contrasting colors or any unnecessary fancy borders. Do however include the following:
Logo
Business Name
Founder’s Name (optional)
The words “Business Plan”
An image of the product (optional)
Date Table of Contents This page should give anyone skimming through your business plan a clear roadmap of which section falls where. The benefits being that depending on who’s reading the plan, some people might go through everything chronologically and others will have different priority sections they’ll want to jump straight through to and skip others. This means having every section, and potentially subsection, that could be of interest on the table of contents. You also don’t need to spend a lot of time thinking about the most sophisticated way to number your topics. Simply using the numbers 1,2,3 and so on for main sections and 1A, 2A, 3A for subsections works just fine. We all have our preferences though, so feel free to go with yours. Executive Summary A good executive summary is the holy grail of good business plan writing. Even though it comes after you’ve written and thought through every other facet of your business, it is arguably the most important part of the puzzle. Its purpose is suggested in its name, giving time-crunched executives (or your rich uncle) the high-level overview of your business that will either persuade them to continue reading further or toss your plan in the trash can without a second thought.
Secondly, it’s a summary, which means though you’ll only be highlighting the main facets of what you’ve uncovered over the course of writing your plan. Admittedly, it is a lot of pressure for a one page document, but it’s there so you’ll have to reserve some time at the end to crafting it to your utmost ability. Here’s what your executive summary should include:
Business Concept (What you do)
Business Goals and Vision (What you want to do)
Product Description and Differentiation (What you sell and why it’s different)
Target Market (Who do you sell to)
Marketing Plan (How you plan on reaching your customers)
Current Financial State (What you currently make in revenue)
Projected Financial State (What you foresee making in revenue)
The Ask (How much money you’re asking for)
The Team (Who you are and why it matters) CHAPTER 3
The Company
“You don't have to fear your own company being perceived as human. You want it. People don't trust companies; they trust people.” ― Stan Slap This section of your business plan will fundamentally answer two questions: 1. Who are you? 2. What do you plan to do? Answering these questions in a concise, direct, and simple manner should provide an ample introduction of why you’re in business, why you’re different, what you have going for you, and why you’re a good bet if you’re asking for an investment. It's also a good opportunity, if you haven’t done so already, to evaluate and put to paper some of the more intangible facets of your business principles, ideals, and cultural philosophies that will allow you to better grasp your own corporate identity. Okay, so here are some obvious and necessary components that need to be here:
Structure of your business (ex. sole proprietorship, general partnership, limited partnership, or an incorporated company)
The date your business was established
The nature of your business (what are you selling?)
The industry you are in
Business vision, mission, and values
Background information on your business or its history
Business Objectives (short and long-term)
The team Here are some tips to help you tackle some of the more tricky ones that are listed above:
Structure of Your Business In case you’re wondering which category you fall under, here are some common definitions:
Sole Proprietorship: Someone who owns an unincorporated by themselves
Partnership: Here two or more persons join to create and sustain a business while contributing some form of money, property, and skill while being directly impacted by the profit or loss of the business
Corporation: This structure enables prospective shareholders to exchange money and/or property in exchange for capital stock.
Limited Liability Company (LLC): This is a state-authorized business structure that falls under state specific regulations that is composed of members, who are the owners.
Business Vision, Mission, and Values This is when you really start getting into the core of why your business exists, what you hope to accomplish, and what you actually stand for. Now, don’t spend more than a previously allocated time to get the answer to those questions together, let’s face it, as a fledgling company, you’re learning as much about yourself each day as you are about your customer. Meaning, don’t by any means feel that anything you state here is set in stone. But what this does mean is giving yourself a starting point to build on top of at a later date (hopefully when you’re in your growth phase).
First off, it’s important to clarify your values. In short, this means taking into account all the various stakeholders that your company is accountable to, that includes owners, employees, suppliers, customers, and investors. Now consider how you would like to ideally conduct business with any one of those stakeholders. Start making a list and your core values should start to emerge.
From there, you can pen down your mission statement. Let’s break those words up first, according to Dictionary.com, a mission can be defined as “an important goal or
purpose that is accompanied by strong conviction,” and a statement can be defined as “a single sentence or assertion.” Now let’s put the two together to break down what you mission statement should be. It should state the purpose of why your business exists in a convincing manner in no more than a single sentence, the shorter, the better. Here are some do’s and don’ts we’ve deduced from several experts on the subject matter. Do’s
Create something that connects with both employees and customers
Make it about you
Highlight your value proposition
Make it tangible
Mention a specific goal Don’ts
Make it useless
Make it long
Make it generic
Make it confusing
Example of a Bad Mission Statement: General Motors “G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stockholders will receive a sustained superior return on their investment.”
Example of a Good Mission Statement: Nike “To bring inspiration and innovation to every athlete in the world.” Once that’s out of the way, you can move on to crafting your vision statement. Again, let’s start by defining what the word vision means. It is “the act of anticipating that which will be or may come to be.” So, what impact do you envision your business having on the world once you’ve achieved your vision? Now that you’re thinking that far down the road about your business, put it it, an assertion. You can have more than a single sentence for this one, but we don’t recommend going over three at most. Gloss it over to make sure that anyone who comes in its proximity feels any one of the following emotions; inspiration, hope, commitment, and awe. Just like the mission statement above, here are so do’s and don’ts along with some examples: Do’s
Make it compelling
Make it detailed
Paint the intended end outcome
Highlight why your company exists
Make it the outcome of your mission statement Don’ts
Make it bland
Make it generic
Make it uninspiring
Make it obviously unreasonable
Example of a bad vision statement: Dell
“To be the most successful computer company in the world at delivering the best customer experience in markets we serve.”
Example of a good vision statement: Amazon "Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online." Business Objectives (short and long-term) Now that you’ve got the “what” and “why” answered for your business, it’s time to jump into the “how.” Once you’ve figured out your vision and mission, it’s time to lay down how you’re going to execute and bring them to reality? That’s where setting goals and objectives come into play. We’ll start with a friendly reminder of the importance of making them SMART. Which means making them:
S - specific
M - measurable
A - actionable
R - realistic
T - time-frame At this point, you’re probably wondering what’s the difference between a goal and objective? One way to categorize them are that goals tend to lean towards being more qualitative, while objectives almost always tend to be more quantitative. Goals usually revolve around achieving big picture business intentions centred around market position, customer service, growth, and company culture among other key things. Objectives on the other hand focus more on practical, day-in day-out metrics that revolve around revenue, number of customers, and product-related metrics. Lastly, let’s define the context around timelines for an entrepreneurial venture. Shortterm mean the next 9-12 months, while long-term typically should refer to the next 1-5 years.
The Team
This is where you hammer home the point that you not only know what you’re doing and where you’re going, but that you’ve got the right mix of talent and experience to actually make it all happen. For this section you can highlight key members from your management team as well as their salaries (which might just be you for the time being) as well as listing your advisors or board members, in addition to any external professional service providers who may be consulting with like lawyers or accountants. Another thing you might consider listing are the positions you’ll be looking to hire in the near-term future. CHAPTER 4
The Industry
“The environment is everything that isn’t me.” ― Albert Einstein Remember the time you walked into an exam without ever having opened the textbook? The first thought that probably came to your mind was that you should have done your homework, right? When you’re starting a new business, there’s a lot more at stake than just a passing or failing grade, so you’re going to want to show that you’ve done your research and care enough about your own success to have scoped out the lay of the land.
You’re also going to have to use this section to demonstrate that the industry’s market size is worth going after, who you main competitors will be if you decide to pursue it, and how you’ll be able to carve out a niche for yourself and give them a run for their money.
Market Size Let’s start with getting an idea of just how big the opportunity is and why it’s worth going after. This means figuring out how many customers you’re going after and what are the revenue possibilities? This is a convincing first step to lure in whoever is reading your business plan to become intrigued and dig further into your findings. But, you might get stuck on figuring this one out, so here are some general categories to point you in the right direction:
Free resources on the web
Government sources
Trade associations
Financial Services Firms
Online Data Providers
Industry Forces and Trends Now you’ll need to outline what’s happening in the industry from a number of wide angles that would help the reader of your business plan get the gist of whether on the whole if its a good or bad place to be. A great general-purpose tool for doing just that is something called the PEST Analysis. Here’s what it stands for and what you should consider: PEST Analysis
P - Political factors What role the government plays in your industry?
E - Economic factors What is the state of economy on both a local and national level?
S - Social factors What the relevant changes in matters like lifestyle trends, demographics, consumer attitudes, buying patterns and opinions?
T - Technological factors What is the impact of changing technological trends on your industry? Another handy tool to have in your arsenal when conducting industry research is the almighty Porter’s 5 Forces Analysis. Don’t worry if you’ve never attended a business strategy class in your life, it’s actually quite straightforward. Here are how they break down: Porter's 5 Forces Analysis
1. Threat of New Entrants How difficult (or easy) is for someone to enter your specific vertical? If it’s very easy then most likely the space will be crowded with competitors fighting for margins. Conversely, if it’s very difficult, that that in itself can become a competitive advantage.
2. Threat of Substitute Products (or Services) How likely is it that another product or service could decrease demand or displace you and potentially the entire industry all together?
3. Bargaining Power of Customers When it comes to pricing and terms, how much power does your customer have? Are they organized enough to exercise their purchase power or is their so much competition that they have their pick resulting in pricing wars amongst providers?
4. Bargaining Power of Suppliers This refers to how dependant you are on a given supplier to operate your business. If
it’s difficult or near impossible for you to switch, that means they have the upper hand, whereas, if the switching costs are low, you can negotiate better terms for yourself.
5. Competitive Rivalry of Market Factoring in the first four forces, you can arrive at a good understanding of the playing field and whether it’s in your favour you enter it, how long you’ll be able to last, through what means you’ll carve a space for yourself, and what you’re up against.
Competition Once you’ve given your reader a good idea of the important trends and paradigm shifts in the industry, you’re going to have to start dropping names and point out your major competitors. This means factoring in not just your direct competition (those with similar offerings) but the indirect competition as well, meaning the 800 pound gorillas lurking in the jungle (or the Amazon and Googles of the world). To help both you and reader get a good grasp on how formidable those competitors might be, you’ll want to mention things like their annual profits, market share, and distinct competitive advantage. It’s much easier to find information on public companies than private companies, but it’s always a good idea to do as much background research as possible. You’ll also want to use something called a SWOT Analysis when discussing these competitors to make sure you’ve covered the right amount of ground. Here’s what it stands for: SWOT Analysis
S - Strengths What do they have going for them? Is it their technology, brand, people, or lean value chain?
W - Weakness What do they not have going for them? Are they missing experienced management, have unreliable customer service, or just plain old poor customer retention?
O - Opportunities What are they positioned to take advantage of? Are their environmental trends or changes they are likely to benefit from?
T - Threats What’s keeping them up at night? Or what should they be worried about? Lastly, before we move onto “how” you’re going to get your product or service in other people’s hands, we need to discuss what makes your offering distinct from everything else in the marketplace. These variables are often referred to as your “value propositions,” “unique selling points” or “competitive strategy.” First, we’ll start by once again taking a page from our friend Michael Porter’s playbook and refer to his Generic Competitive Strategy, which states three routes for standing out from the competition. Generic Competitive Strategy
1. Cost Leadership This refers to having the capacity to scale operations in order to offer lower prices than the majority of the players in an effort to maximize profits.
2. Differentiation This is where your product or service offers something distinct than those of the current cost leaders in your industry and banks on standing out based on the “newness” factor.
3. Segmentation This is where you focus on a very specific or “niche” target market and focus on building traction with a smaller audience first before moving on to the bigger fish. We’re also big fans of a book you should be reading called “Business Model Generation” by Alexander Osterwalder and Yves Pigneur who list some very handy ways that your offering can stand out from the crowd. Based on the list in their book, here are a few particular ones you can compete on:
Newness - Satisfying a previously undiscovered need or want with no similar offering
Performance - You’ve built something that is incrementally faster or better than what exists in the marketplace
Customization - You tailor your offerings to each individual customer or customer segment
Design - Your offering is markedly better designed or stands out from the others
Price - You offer the same thing as everyone else at a lower price
Cost reduction - You help your customers save money
Risk reduction - You help reduce the risk your customers take when purchasing what you have to offer
Accessibility - You’ve tapped into a previously underserved or never served market
Convenience - You’ve made something that’s much easier to use than whatever else is in the marketplace CHAPTER 5
The Marketing Plan
“Making promises and keeping them is a great way to build a brand.” ― Seth Godin
Customer Segmentation Now it’s time to slice and dice your market into segments and identify your target customer. You’re going to want to describe a number of both general and specific demographic characteristics that apply. Some of the questions you’ll want to answer are:
Where do they live?
What’s their age range?
What’s their level of education?
How many of them are there?
What are some common behaviour patterns?
What do they spend their free time on?
Where do they work?
What technology do they use?
What ethnicity are they?
How much do they earn?
Where are they commonly employed?
What are their values, beliefs, or opinions? The details and the questions you’ll answer will vary greatly based on what it is you’re selling, but you should get a gist. Essentially, you want to paint as detailed a picture as possible with both the qualitative and quantitative information you can gather.
Another way to frame your customers which can be useful to paint another layer onto what you already know is the Product Diffusion Curve, in other words how quickly your customers are likely to adopt a new technology. There are five major categories this breaks down into, they are:
Innovators - These are the folks who’ve done their research on the latest product launches, follow all the hype, and will wait for any amount of time in a line to get their hands on the latest gizmo.
Early adopters - Based on the feedback and response from innovators, early adopters then decide whether to jump on the bandwagon or not.
Early majority - Once a products been tested and proved by a larger pool, these customers listen closely to the recommendations of the groups listed above when deciding whether to purchase something or not.
Late majority - These individuals don’t trust anything until it becomes commonplace and popular
Laggards - They only change their consumption habits when what they’re used to no longer exists and becomes obsolete. Only when that occurs do they start looking for alternatives There are certainly no shortage of ways to break down your customer segments, but you’ll want to do it in a way that’s most meaningful for what you’re trying to market. Speaking of marketing, you’re going to have to provide a detailed plan for how you’re actually going to go from generating awareness to ultimately getting what you’re selling into the hands of your target customers.
Marketing Your Products Here’s something to keep in mind before you start jotting down a detailed plan, this is referred to as the Buyer’s Five-Step Adoption Process. This model highlights the sequence of steps a buyer goes through before making the final purchase decision.
Awareness - Customers are aware you exist, but don’t know what it is you do or sell
Interest - Customers have now heard of you and because of what they see, they want to learn more
Evaluation - Customers are now decided whether to give you a shot or not
Trial - Customers are willing to make an initial purchase to take your products and services for a spin
Adoption - Customers now love what you have to sell and will regularly purchase from you. The first half of that adoption process gets covered through your advertising and promotions plan, while the later half requires a solid sales and distribution plan. Some of the questions that you’ll want to answer for each are outlined below. Advertising and Promotion Plan
Will you have a dedicated presence across many of the popular online channels (ex. website, social media, relevant marketplaces…etc.) used today to gain brand awareness?
Will your marketing plan be primarily inbound focused (ex. SEO, social media, blogging…etc...), outbound focused (ex. PPC, affiliate marketing, sales teams…etc.), traditional focused (ex direct mail, brochures, and print advertising) or a mix of all three?
What are other low-cost yet effective marketing mediums that you’ll leverage to get attention?
What is your PR strategy? Why would the press be interested in your story? Sales and Distribution Plan
What channels will you use to get your product out there? Will you sell via your website, a retailer, wholesaler, or a different channel all together?
How will customers be able to pay for your product?
What will your return policy look like? Will you offer any guarantees? If so, what will they look like?
What happens after a customer makes a purchase? What type of customer support will you provide? Once you get all these details down, the next chapter will walk you through putting together an operations plan. This will give your business plan reader a boost in trust that you’ll be able to deliver on your vision highlighting how you’ll get from manufacturing to shipping. CHAPTER 6
The Operations Plan
“In the end, all business operations can be reduced to three words: people, product, and profits.” ― Lee Iacocca By now your reader will have learned about everything relating to your core offering, who your customer is, what the market opportunity is, and who some of the other big players in the industry are. However, they’re probably wondering just how you plan on running the company day-in and day-out. As in where are you in terms of execution of the plan and how will you go about creating and delivering your product or service.
The Supply Chain
Let’s start with the workflow that you’ll have to deal with to make your ideas a reality. Some of the things you’ll want to touch on are:
Suppliers - Who will be providing you with all the materials that you won’t be manufacturing yourself?
Facilities - Where will you house your inventory (if any) or which office will you be working out of?
Personnel - How many staff will you require your daily operations? What will their duties look like?
Equipment - What tools and technology do you require to be up and running or to take your company to the next level? (This could include everything from computers to office desks and everything in between)
Shipping and Fulfilment - Here you’ll have to outline whether you’ll be handling all the deliveries on your orders or if you’ll be using a third-party fulfillment partner.
Inventory - Here you’ll highlight how much you’ll keep on hand, where it’ll be stored, and how you’ll have it shipped to third-partners if applicable. Also, an important detail to note is how you’ll keep track of everything going in and out.
Customer Support - How will support requests, refunds, and customer complaints be considered and integrated in your business workflow?
The Production Process You’ll also want to get more specific into your entire production process, and that means covering:
How long it will take you to produce a single unit or a predefined number of units?
What measures have been put in place to integrate customer feedback into your product or service? As in, have you allotted time to create and test prototypes, pricing, or delivery mechanisms?
How will you deal with major influxes in demand, as in what procedures or steps will you have in place when you offer a sale and orders come flying in? This section should signal to the reader of your business plan that you’ve got a good handle of running your business and the contingency plan you have in place to account for uncertainty in the marketplace. Next comes the fun part, your financial plan. Get ready to have fun with nothing more than a spreadsheet, some paper and maybe a calculator. CHAPTER 7
The Financial Plan
"Money is to my social existence what health is to my body." ― Mason Cooley One thing we all have to come to terms with is that no matter how great a business idea might be, a business lives and dies based on its financial feasibility and most importantly its profitability. Regardless of how hard you work, how much of your own time and money you’ve put in, at the end of the day people want to support something that has the ability to return their investments and then some. So what exactly do you have to include in this section? You’ll need to include three statements:
Income Statement
Balance Sheet
Cash-Flow Statement Sounds exciting right? We’ll let’s get started then and break each of those down into digestible components. Hopefully by the end of it, you’ll have something to chew on.
Income Statement This beautiful composition of numbers is what tells someone reading it exactly what your sources of revenue are and which expenses you spent your money on to arrive at, you guessed it, the bottom line. Essentially, for a given time period, the income statement states the profit or loss (revenue-expenses) that you made.
Income Statement Template ___________ Sales Direct Cost of Sales ___________ Other Production Expenses ___________ Total Cost of Sales ___________ Gross Margin ___________ Gross Margin % ___________ ___________ Expenses Payroll ___________ Marketing & Other Expenses ___________ Depreciation ___________ Leased Equipment ___________ Utilities ___________ Insurance ___________ Rent ___________ Payroll Taxes ___________ Other ___________ Total Operating Expenses ___________ Profit Before Interest & Taxes___________ EBITDA ___________ Interest Expense ___________ Taxes Incurred ___________ ___________ Net Profit ___________ Net Profit/Sales
Balance Sheet The key word here is “balance,” but you’re probably wondering what exactly needs to be weighed? On one side you should list all your assets (what you own) and on the other
side, all your liabilities (what you owe), thereby giving a snapshot of your net worth (assets - liabilities = equity). 
Balance Sheet Template ___________ Assets Current Assets ___________ Cash ___________ Inventory ___________ Other Current Assets ___________ ___________ Total Current Assets Long-term Assets ___________ Long-term Assets ___________ Accumulated Depreciation ___________ ___________ Total Long-term Assets ___________ Total Assets ___________ Liabilities and Capital Current Liabilities ___________ Accounts Payable ___________ Current Borrowing ___________ Other Current Liabilities ___________ Subtotal Current Liabilities ___________ Long-term Liabilities ___________ ___________ Total Liabilities Paid-in Capital ___________ Retained Earnings ___________ Earnings ___________ ___________ Total Capital Total Liabilities and Capital___________ ___________ Net Worth
Cash Flow Statement This statement is similar to your income statement with one important difference, it takes into account just when revenues are actually collected and when expenses are paid. When the cash you have coming in (collected revenue) is greater than the cash you have going out (disbursements), your cash flow is said to be positive. And when the opposite scenario is true, your cash flow is, well negative. Ideally, your cash flow statement will allow you to recognize where cash is low, when you might have a surplus, and how to be on top of your game when operating in an uncertain environment. 
Cash Flow Statement Template Cash Received Cash from Operations Cash Sales
___________ ___________ ___________
___________ Subtotal Cash from Operations Additional Cash Received ___________ Sales Tax, VAT, HST/GST Received ___________ New Current Borrowing ___________ New Other Liabilities (interest-free) ___________ New Long-term Liabilities ___________ Sales of Other Current Assets ___________ Sales of Long-term Assets ___________ New Investment Received ___________ ___________ Subtotal Cash Received ___________ Expenditures Expenditures from Operations ___________ Cash Spending ___________ Bill Payments ___________ ___________ Subtotal Spent on Operations Additional Cash Spent ___________ Sales Tax, VAT, HST/GST Paid Out ___________ Principal Repayment of Current Borrowing___________ Other Liabilities Principal Repayment ___________ Long-term Liabilities Principal Repayment ___________ Purchase Other Current Assets ___________ Purchase Long-term Assets ___________ Dividends ___________ ___________ Subtotal Cash Spent ___________ Net Cash Flow ___________ Cash Balance
Conclusion Writing a business plan for your online store is no easy task but I hope after going through the guide you can see that it's well worth the effort. Not only does it better prepare you to deal with some of the shortfalls any new business owner will experience but it gives you a leg up on your competition through better research and insights gained from the process. If you have any feedback or would like to share your success story about how this guide helped you write a better business plan, please be sure to send me an email at humayun@shopify.com.
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CHAPTER 8
Sample Business Plan
This sample business plan is intended to provide you with a template that can be used as a reference for when you’re hard at work on your plan. The company is a completely fictional organic denim and apparel company, however, we made sure the industry research was grounded in real world numbers as much as possible. Let’s get started: Executive Summary I'll Be Denim is an organic denim clothing line headquartered in Los Angeles that currently focuses exclusively on locally producing a slim fit, straight fit, and regular fit line of jeans for men and women. Founded by Elena Horowitz, a retail industry veteran with experiences at JCrew, the Gap, and Levi’s, and James Foster, a serial entrepreneur, the duo is out to bring socially conscious fashion to the masses. Currently selling online and through partnerships with a handful of local boutiques in LA, the company is projecting to sell upwards of $400,000 in year 1 and reaching $750,000 in 3 years. Plans for expansion include setting up distribution and manufacturing relationships in New York, another fashion centric goldmine where the company aims to gain greater market penetration. With an emphasis on environmentally responsible fashion, I’ll Be Denim will also be starting a jeans recycling program where consumers will be able to ship or drop off old pairs of jeans and have them used in the manufacturing process for new ones. Industry research has found that US consumers own on average 7 pairs of jeans and stick to one brand based one one important variable, fit. Given that statistic the
company’s designs center around providing the best fit, with a tagline of “denim so good, you’ll never take your clothes off”. To further take advantage of this insight, I’ll Be Denim will be launching a custom tailor option where users will be able to request custom fit jeans through an online portal. The primary competition comes from three foreign brands namely Kuyichi, Hiut Denim, and Nudie Jeans, all which have been committed to sustainable fashion since the onset and are huge advocates for the organic cotton movement. The brand value proposition and differentiation will come from being an American brand with images of patriotism and ruggedness that shows both fashion forward thinking and a concern for the environment. Primary means of marketing will be online through analytic-driven approaches like SEO and paid search, in addition to capitalizing on social channels like Instagram, Facebook, Twitter, and Pinterest. User generated content and engagement will be key as product pages will include Instagram photos and promote consumer pride in our products. The organic cotton will be sourced from two mills, one based in Turkey and the other in Japan where it will be transformed to denim and dyed in natural indigo colors and shipped to our manufacturing and shipping partner DenimsR’Us in LA. Day to day operations are handled through an office in LA with a second office in New York to be opened in a years time. The company has been funded through the two founders, their family and friends, alongside some private investment. Our Story I’ll Be Denim is a denim clothing line based out of Los Angeles focused on bringing the highest quality organic denim wear to North America. Founded by reputable designer Elena Horowitz and business partner James Foster in October, 2012 with the duo having gone from a small basement operation in Elena’s home to successfully launching their online store and scaling their operations. After both founders worked for several years in the retail and fashion industries respectively, one thing became increasingly clear to both of them, the industry is in the midst of a deep moral and ethical crisis. With cheap labour being continuously exploited with abysmal working condition overseas and traditionally manufactured cotton using upwards of 25 percent of the world’s entire agrochemicals consisting of unimaginable amounts of insecticides and pesticides, Elena and James decided enough is enough. The duo’s vision for I’ll Be Denim is simple, fashionable denim wear made with organic materials that’s manufactured locally and created with the intent to make the fit so comfortable that you’ll never want to take their clothes off. To achieve such a grand vision, the company is committed to providing the best in class customer service in
addition to working with only the most detail oriented local manufacturers and promoting eco-friendly fashion to the mainstream. The guiding values and principles for the company are “guilt-free fashion” (letting customers purchase high-quality apparel without shutting out their conscious), “the denim is in the details” (working with only the best local production factories), and “eco is not a fad, but our last chance” (sourcing organic denim from certified suppliers). Current Company Status I’ll Be Denim was incorporated in October, 2012 and operates as a partnership between Elena Horowitz and James Foster. All company shares are held by the founding duo. Since sourcing, manufacturing, and selling out of Elena’s basement to friends, family, and through local boutiques, the company has grown to have it’s own online store, relationships with suppliers of premium organic denim in Turkey, and local manufacturers in LA. The company has had its revenues double every two months. I’ll Be Denim Objectives I’ll Be Denim is currently selling denim jeans online through its Shopify ecommerce store shipping primarily within Southern California with market penetration in New York, another in addition to sporadic orders north of the border to Canada in Toronto and Montreal. It also currently partners with two local fashion boutique stores focused on selling eco-friendly apparel that looks and feels good. The company is laser-focused on growing its sales and operations as broken down in the two phases listed below: Phase I (Next 6 Months)
Increase online sales by 20 percent by end of year through influencer and social media marketing tactics
Partner with 3 additional local high-end fashion boutiques with shared values as distribution channels
Increase online social presence on Facebook, Twitter, Instagram, and Pinterest by 30 percent
Build out a “custom apparel” line of the business giving online consumers the ability to create their own denim jeans and jackets Phase II (Next 12 Months)
Explore possibility of brick-and-mortar operations through testing pop-up stores in LA region
Create strategic partnerships with local fashion boutiques in New York for distribution in the area
Scope out local manufacturers in New York area for quality production with aim of opening operations for denim jackets as the next product line and increased delivery within region
Initiate a jean recycling program whereby consumers will be able to deposit their denim and have them be reused in the creation of new jeans The Team Elena Horowitz is an award-winning fashion designer who graduated from the Rhode Island School of Design and worked at top retail brands like J Crew, the GAP, and Levi’s for the past 15 years. Fed up with the lack of speed with which most retail brands were moving towards embracing eco-friendly means of production, she decided to quit her job and start I’ll Be Denim. She serves as Chief Design Officer (CDO) and works with partner manufacturers to ensure quality of product. James Foster dropped out of the University of Berkeley after finding success with his first online store selling fertilizer and garden equipment with his college roommate. After successfully exiting the company, he went on to hold operational positions in management for a slew of ecommerce companies before meeting Elena at a party and hitting it off. The two discussed their guilt over buying from traditional fashion brands and decided to combine forces to launch their own label. He serves as the Chief Executive Officer (CEO) and oversees all supplier relationships, business logistics and strategic partnerships. Market Size and Development A recent report looking at the Global Denim Consumption and Production through the years 2011 to 2021 by Denimandjeans.com found that in 2007 the world jeans market was worth an estimated $51.6 billion and is at pace to grow to $56.2 billion by the year 2014. The report also revealed that North America consumes an estimated 39 percent of denim purchased worldwide while more than 50 percent of production is still based in Asia, specifically in countries like China, India, Turkey, Pakistan and Bangladesh. Another report that focused exclusively on the denim consumption habits in the US found that an average US consumer owns 15 denim garments on average, 7 of which are pairs of jeans. Out of all apparel purchased denim makes up 17 percent which explains why it continues to be the highest selling clothing item in the world. However, when it comes to consumer behaviour and trends most US denim purchasers buy jeans for fit at 66 percent citing the reason over its brand name. Interestingly enough though, 73 percent prefer to purchase the same brand as the one they own with men showing more loyalty at 64 percent than women at 45 percent.
Going deeper into the growing level of awareness around environmental sustainability and climate change, the Cotton Incorporated 2013 Environment Survey found that 51 percent of consumers say that environmentally friendliness is important to their apparel purchase decisions. Digging a little further, about 33 percent are actually more likely to seek out environmentally clothes for themselves. When it comes to the material of their clothes though, nearly 72 percent of survey respondents say that natural fibres are better for the environment than synthetics, with 51 percent of consumers willing to pay more for them. Such trends are driving global brands like Gucci, Timberland, and others to focus on making their products and supply chain more environmentally friendly. Pair all those facts together and you get a winning combination championed by I’ll Be Denim, provide consumers with organic denim manufactured locally with an emphasis on designing for fit while also offering custom fit solutions. Competition
Kuyichi - Based in the Netherlands, the company has been in the market since 2001 selling organic denim wear while simultaneously using natural indigo dyeing techniques and running a robust jeans recycling program
Hiut Denim - Based in the UK, the company operates out of a small town known for manufacturing jeans. It currently offers a selection of organic denim jeans targeted at both men and women, making only 100 pairs a week and resolving to only make jeans
Nudie Jeans - Headquartered in Sweden, the company achieved its goal of launching an organic denim jeans collection in 2012 and has both online and brick-and-mortar locations. They also have a wide assortment of sustainable efforts ranging from providing a fair living wage to everyone involved in the manufacturing process and recycling jeans. Brand Differentiation and Value Proposition Though there are more than a handful of organic denim startups, at I’ll Be Denim, we firmly believe that with the founder’s combined experience, industry partnerships, and focus on providing the quality denim jeans produced with sustainability in mind from cradle to grave, the brand can stand out. Our plan is to leverage our American heritage and love for the fabric and use a marketing strategy that is closely aligned with building personal relationships with our target market. In addition, with fit being the biggest variable in jean purchase decisions, our custom fit program in addition to our slim, straight, and regular fit jeans will help us delight our customers who in turn will spread the word. Target Market
With our initial line of slim fit, straight fit, and regular fit denim jeans, we’re looking to target the following consumer segment:
Age: 17-35
Social Media Savvy: Voraciously active on popular social networks like Facebook, Twitter, Instagram, Pinterest, and Tumblr
Fashion Forward: With a keen eye on their day to day wear, these male and female fashionistas dress to impress
Addicted to Mobile: They Instagram their food, check their Facebook status while waiting in line, and tweet every traffic disruption they experience.
Eco-Friendly: They feel a pinch everything they know their clothes were manufactured unethically or are aware of the eco-footprint they have by consuming clothes made with regular cotton
Location: The beachheads for the company will be LA and New York, however, with the ability to shop online, we’ll heavily promote ourselves throughout southern California Marketing Plan
SEO: Our content and blogging efforts will be targeted at having us rank competitively for keywords like “organic denim”, “organic jeans”, and “eco-friendly garments”
Paid Search: We will invest in both Google Adwords and Facebook Ads to take advantage of their PPC services with optimized landing pages for conversion
Instagram: We will launch campaigns and contest to encourage user-generated images which we will then upload to our product pages to build a community around our brand and the values we stand for
Other Social Media: We will subcontract a community manager to regularly engage our Facebook, Twitter, and Pinterest communities
PR: We will promote our story, values, and fashion to leading fashion blogs and print magazines emphasizing our earth-friendly and ethically manufactured clothing
Business Development: We will actively look for the most popular local fashion boutiques frequented by our target market that shares in our values and beliefs
Another point to highlight is our focus on customer service with a 100 percent “fit satisfaction” guarantee or reimbursement for any alternations, in addition to a complete refund policy effectively in place. Daily Operations For our day to day operations, I’ll Be Denim has established several key partnerships that ensure long-term durability and the ability to scale alongside demand for our goods. We will source the best organic cotton from two suppliers, one located in Turkey and the other in Japan which means that their supplies were produced without the use of any pesticides and was dyed in indigo using a natural means. Once the shipment arrives in the US, it’ll be routed to our production and shipping partner, DenimsR’Us located in the outskirts of LA who the company will work closely with to ensure quality through regular checks and audits. It is also where the products will ship out of through an integrated backend system and order processing mechanism. The I’ll Be Denim office is located on 2029 Century Park East where the two cofounders in addition to two admin and one sales and marketing support staff will work out of handling all online order processing and ensuring the purchase to delivery of their denim products runs smoothly. It’s also where all requests for refunds will be handled in addition to the future launch of the jean recycling program. Financial Plan Pro Forma Income Statement Year 1 Year 2 Year 3 $395650 $610000 $750000 $50370 $82000 $105000 $50370 $82000 $105000 $100740 $164000 $210000 $294910 $446000 $540000 74.54% 73.11% 72%
Sales Direct Cost of Sales Other Production Expenses Total Cost of Sales Gross Margin Gross Margin % Expenses Payroll $177600 $192600 $212000 Sales and Marketing and Other Expenses $0 $130000 $150000 Depreciation $7140 $7140 $7140 Leased Equipment $0 $0 $0 Utilities $6000 $6000 $6000 Insurance $6000 $6000 $6000 Rent $24000 $24000 $24000 Payroll Taxes $26640 $28890 $31800
Other Total Operating Expenses Profit Before Interest and Taxes EBITDA Interest Expense Taxes Incurred Net Profit Net Profit/Sales
$0 $0 $0 $247380 $394630 $436940 $47530 $51370 $103060 $54670 $58510 $110200 $13830 $12750 $12570 $10110 $11586 $27147 $23590 $27034 $63343 5.96% 4.43% 8.45%
Pro Forma Cash Flow Year 1 Year 2 Year 3 Cash Received Cash from Operations Cash Sales $395650 $610000 $750000 Subtotal Cash from Operations $395650 $610000 $750000 Additional Cash Received Sales Tax, VAT, HST/GST Received $0 $0 $0 New Current Borrowing $0 $0 $0 New Other Liabilities (interest-free) $0 $0 $0 New Long-term Liabilities $0 $0 $0 Sales of Other Current Assets $0 $0 $0 Sales of Long-term Assets $0 $0 $0 New Investment Received $0 $0 $0 Subtotal Cash Received $395650 $610000 $750000 Expenditures Year 1 Year 2 Year 3 Expenditures from Operations Cash Spending $177600 $192600 $212000 Bill Payments $103957 $364975 $463540 Subtotal Spent on Operations $281557 $557575 $675540 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 Principal Repayment of Current Borrowing $0 $0 $0 Other Liabilities Principal Repayment $0 $0 $0 Long-term Liabilities Principal Repayment $21600 $1800 $1800 Purchase Other Current Assets $19800 $19800 $19800 Purchase Long-term Assets $0 $0 $0
Dividends Subtotal Cash Spent Net Cash Flow Cash Balance
$0 $0 $0 $322957 $579175 $697140 $72693 $30825 $52860 $137293 $168118 $220978
Projected Balance Sheet Year 1
Year 2
Year 3
Assets Current Assets Cash $137293 $168118 $220978 Inventory $6270 $10207 $13070 Other Current Assets $19800 $39600 $59400 Total Current Assets $163363 $217926 $293448 Long-term Assets Long-term Assets $50000 $50000 $50000 Accumulated Depreciation $7140 $14280 $21420 Total Long-term Assets $42860 $35720 $28580 Total Assets $206223 $253646 $322028 Liabilities and Capital Year 1 Year 2 Year 3 Current Liabilities Accounts Payable $9633 $31822 $38661 Current Borrowing $0 $0 $0 Other Current Liabilities $0 $0 $0 Subtotal Current Liabilities $9633 $31822 $38661 Long-term Liabilities $128400 $126600 $124800 Total Liabilities $138033 $158422 $163461 Paid-in Capital $200000 $200000 $200000 Retained Earnings -$155400 -$131810 -$104776 Earnings $23590 $27034 $63343 Total Capital $68190 $95224 $158567 Total Liabilities and Capital $206223 $253646 $322028 Net Worth $68190 $95224 $158567 CHAPTER 9
About the Author Humayun Khan
Humayun joined Shopify's marketing and growth team in 2013 after the company's acquisition of UX design agency Jet Cooper. Previously, he was the Sr. Writer at emerging technology publication BetaKit where he covered early-stage startups from around the globe. A graduate from Ryerson, he gave up his seat in Law School to pursue writing, marketing, and startups. Follow Humayun on Twitter.