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Developing a business plan for your clients.

Developing A Business PLAN For your Clients

Accountants have traditionally used their expertise to help clients solve their budgeting and forecasting problems. Because of an unprecedented period of economic growth and expansion, we find ourselves emersed in the exciting world of entrepreneurship. New ventures, new products and new services are being launched with increasing rapidity. One thing that new ventures have in common is the need for capital, often large amounts of capital.

Providers of venture capital have one thing in common--they don't like to lose money. In fact, the expect a generous return on their investments. In order to minimize the former and maximize the latter, they often require a complete businesss plan. Management consultants have been preparing business plans for their clients, but this in an expanding field. If business expansion continues into the forseeable future, and there is reason to believe that it will, there will be a growing demand for comprehensive business plans. Accounting firms with their existing knowledge of budgeting and forecasting are in an excellent position to help meet that demand.

What Is a Business Plan?

A business plan is the entrepreneur's road map for a successful enterprise. It is a written document which describes in detail a proposed venture, and its purpose is to illustrate the current status, expected needs and projected results of a new or expanding business. Every characteristic of the project is described--marketing, research and development, manufacturing management, risks, financing and a timetable for accomplishing clearly identified goals. Each of these segments is necessary to show a clear picture of what the venture is, where it is going and how the entrepreneur proposes to get it there.

Since planning is essential to the success of any undertaking, it must entails the formulation of objectives and directions for the future. There are several critical factors which must be addressed. There must be realistic goals which are specific, measurable and set within time parameters. A commitment to success must be supported by everyone involved in the venture. Milestones must be established for continuous and timely evaluation of progress. Finally, there must be flexibility to allow for anticipation of the obstacles and formulation of alternative strategies.

New ventures and business plans go together. The reason is obvious--new ventures require capital, often substantial amounts of capital. Providers of capital, whether they are lending institutions, major investors in securities, or venture capitalists, require a great amount of information about the enterprise, and anything less than a business plan is insufficient to the task.

In summary, the business plan is the major tool used in guiding the operation of the venture, as well as the primary document in managing it. Its major thrust is to bring together the strategic development of the project into a comprehensive document for outside investors to read and understand. It allows the enterpreneur entrance into the investment process. A subsidiary benefit is that it enables the enterpise to avoid the common pitfalls which cause less organized efforts to fail.

Points of View

Before enumerating what goes into a business plan, it is necessary to address three different points of view from which a business plan is written. The first point of view is that of the entrepreneur. It is the entrepreneur who knows better than anyone else the creativity and technology involved in the venture. This is the most common viewpoint and, while necessary, it should not be emphasized to the exclusion of all others.

The second point of view is that of the marketplace. More important than high technology or creative flair is the marketability of the venture. The "market-driven" enterprise convincingly demonstrates the benefit to users, the customer group it is aiming for, and the existence of a substantial market. Entrepreneurs have often overlooked the necessity of in-dept marketing information in their business plans, although such information has a high value. Therefore, determining the strenght of the market, identifying who will buy the product or service, and documenting that the percentage of this market is appropriate for the success of the venture are extremely valuable parts of the business plan.

The third point of view is that of the investor. The investor's viewpoint is concentrated on the financial forecast, and this is where the skill of the accountant is most useful. Sound financial projections are required for investors to evaluate the relative risk and probable rewards of the investments. Investors need a realistic and achievable three-to five-year forecast, and they are aware that entrepreneurs usually have a highly optimistic opinion of the future success of their ventures.

The Components of a

Business Plan

Readers of a business plan expect it to have two important qualities: It must be in order and it must be complete. With this in mind following is a description of the 10 segments which comprise a complete and orderly business plan. [1]

Executive summary: A short description of the venture should be the first information that the interested readers encounters. It should be written in an interesting way, and it is necessary to emphasize the more important aspects of the plan, such as the unique characteristics of the venture, the major marketing points and the end result. Its purpose is to whet the reader's appetite for more information. A good summary will guarantee that the rest of the plan will be read.

Description of the business. This section contains a general description of the venture. There should be a brief history of the company where applicable and some information about the industry of which it is a part. The product or service should be described in terms of its unique qualities and value to consumers. Finally, goals and milestones should be clarified.

Marketing: There are two major parts to the marketing section. The first is research and analysis. The target market must be identified with emphasis on who will buy the product or service. Market size and trends must be measured and the market share must be estimated. In addition, the competition should be studied in considerable detail.

The second is preparation of a marketing plan. This is perhaps the most important part of the business plan. It must include market strategy, sales and distribution, pricing, advertising, promotion and public relations. Some businesses make the mistake of preparing only a marketing plan, but by itself and outside the structure of a business plan a marketing plan will not meet the needs of a new venture.

Research, development and design: This section includes developmental research leading to the design of the product. Industrial design is an art form which successfully found its way into business, and it should not be neglected. Technical research results should be evaluated, and the cost structure of the newly-designed product should be determined.

Manufacturing: This section requires an investigatin of location needs with a view toward identifying the optimal location for the venture. Proximity to suppliers, availability of transportation and labor supply are of prime importance. The requirements of production facilities and equipment and their cost must be determined in advance.

Management: The management team necessarily requires the presence of outstanding individuals to make the venture a success. Methods of compensation must be decided upon--salaries, employment agreements, stock purchase plans, levels of ownership, and other considerations. The board of directors, advisers and consultants are also part of the management team, and their selection should be based upon their potential contribution to the enterprise.

Critical risks: Risk must be analyzed to uncover potential problems before they materialize. Outside consultants can often be engaged to identify risk and recommend alternative courses of action. The important concept is that risk can be anticipated and controlled. The result of doing so is a more successful venture.

Financing forecasting: This section is where accountants can make a major contribution with skills they already possess. Obtaining financing has always depended upon fair and reasonable budgeting and forecasting. beginning with the sales budget and projected inventory, material and labor requirements can be determined. Variable overhead can be scheduled for various levels of capacity, and when added tofixed overhead the manufacturing budget can be completed. A capital budget can then be prepared and, when coupled with debt service requirements, cash flow needs can be identified. The information thus developed can be summarized into pro forma financial statements, such as forecasted statements of earnings, financial position, and cash flows. If the work is done well, these projected statements should represent the actual financial achievements expected from the business plan. It also provides a standard with which to measure the actual results of operating the enterprise. It becomes a very valuable tool for managing and controlling the business in the first few years.

Miletstone schedule: This is an important segment of the business plan because it requires determining certain objectives and the timing of their accomplishment. Milestones and deadlines should be established and monitored while the venture is in progress. Each milestone is related to all the others, and together they comprise a network of the entire project.

Appendix: This section includes information which is valuable but not contained in the other sections. It may include the name of references and advisers as well as drawings, documents, agreements, or other materials which support the plan. If deemed desirable for a particular plan, a bibliography may be presented.

Preparing the Business

Plan

Constructing a business plan is a challenge because it involves a great amount of work in putting together the 10 components discussed above. After the requisite information is acquired, the package must be put together in good form. Writing the plan is the most productive part considering its purpose. Some vexing questions are "What should it look like?" and "How do I begin?" These questions deserve answers.

Remeber that a business plan gives investors their first impression of a company. Therefore, the plan should present a professional image. Form as well as content is important. There should be no spelling, grammatical or typographical errors. Perfectin should be the norm; anything less is unacceptable. Binding and printing should have a professional appearance. The plan should not exceed 40 pages. The cover page should look attractive, and it should contain the company name and address. Inside the front cover should be a title page containing the same information shown on the front cover as well as the company's telephone number and the month and year the plan is presented.

The first two pages should contain the executive summary. It should explain the company's current status, its products or serviceS, the benefits to customers, financial forecasts summarized in paragraph form, the venture's objectives in the next few years, the amount of financing needed and the benefits to investors. this is a lot of information for two pages, but if done well, the investor will get a good impression of the venture and will be enticed to read the rest of the plan.

A table of contents should follow the executive summary. Each section of the plan should be listed with the page numbers on which they are found.

Obviously, the remaining nine sections will follow the table of contents. If the tenth section, the appendix, is lengthy, it may be necessary to present it in a separate binder in order to keep the plan within the recommended 40 pages. Each of the sections should be written in a simple and straightforward manner. The purpose is to communicate, not dazzle.

An attractive appearance, proper length, an executive summary, a table of contents, and professinalism in grammar, spelling and typing are important factors in putting together a comprehensive business plan. Believe it or not, these are the characteristics which separate successful plans from failed ones. ]2[

Conclusions

Although a business plan is the representation of the entrepreneur, the accountant can provide valuable assistance in its preparation. There are many good reasons for this. The Ability to see the whole picture and not overlook relevant information, attention to detail without leaving anything out, and well-developed budgeting and forecasting skills are qualities needed in many cases of business, including business planning. Since accountants possess these qualities, a little additional knowledge is all that is required to be able to provide this service to potential clients.

(1) Donald F. Kuratko and Ray V. Montagno, The Enterpreneur's Guide to Venture Formation (Muncie, IN 47306: Ball State University, 1986), pp. 28-29. This book is available for $12.95.

(2) Donald F. Kuratko and Richard M. Hodgetts, Enterpreneurship, A Contemporary Approach, (Chicago: The Dryden Press, 1989), pp. 303-305.

Donald F. Kuratko, PhD, is an associate professor of management science and coordinator of the Small Business Management/Entrepreneurship Program at the College of Business at Ball State University. He is the author of several books and articles on small busiess, entrepreneurship, intrapreneurship and new venture creation.

Arnold Cirtin, CPA, PhD, is a professor of accounting at Ball State University in Muncie, Indiana. Throughout his teaching career Dr. Cirtin has been a consultant for many companies and non-profit organizations, particularly in the area of accounting systems.
COPYRIGHT 1990 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Kuratko, Donald F.; Cirtin, Arnold
Publication:The National Public Accountant
Date:Jan 1, 1990
Words:2163
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