N O L O “ An essential book to help entrepreneurs.” DALLAS MORNING NEWS Mike McKeever 10TH EDITION How to Write a Business • Write a winning proposal • Prepare cash fl ow and profi t & loss forecasts • Get backers to invest Plan 25 Y E A R S THE LEADING BUSINESS PLAN BOOK FOR A L L F O R M S O N C D - R O M L L F O R M C D - R O M Free Legal Updates at Nolo.com ®  e Story Dear friends, Founded in 1971, and based in an old clock factory in Berkeley, California, Nolo has always strived to off er clear legal information and solutions. Today we are proud to off er a full range of plain-English law books, legal forms, software and an award-winning website. Everything we publish is relentlessly researched and tested by a dedicated group of in-house legal editors, who together have more than 150 years’ experience. And when legal changes occur after publication, we promptly post free updates at Nolo.com. Tens of millions of Americans have looked to Nolo to help solve their legal and business problems. We work every day to be worthy of this trust. Ralph Warner Nolo co-founder Emma Cofod Books & Software Get in-depth information. Nolo publishes hundreds of great books and software programs for consumers and business owners.  ey’re all available in print or as downloads at Nolo.com. Legal Encyclopedia Free at Nolo.com. Here are more than 1,400 free articles and answers to common questions about everyday legal issues including wills, bankruptcy, small business formation, divorce, patents, employment and much more. Plain-English Legal Dictionary Free at Nolo.com. Stumped by jargon? Look it up in America’s most up-to-date source for defi nitions of legal terms. Online Legal Documents Create documents at your computer. Go online to make a will or living trust, form an LLC or corporation or obtain a trademark or provisional patent at Nolo.com. For simpler matters, download one of our hundreds of high-quality legal forms, including bills of sale, promissory notes, nondisclosure agreements and many more. Lawyer Directory Find an attorney at Nolo.com. Nolo’s unique lawyer directory provides in-depth profi les of lawyers all over America. From fees and experience to legal philosophy, education and special expertise, you’ll fi nd all the information you need to pick a lawyer who’s a good fi t. Free Legal Updates Keep up to date. Check for free updates at Nolo.com. Under “Products,” fi nd this book and click “Legal Updates.” You can also sign up for our free e-newsletters at Nolo.com/newsletters/index.html. Products & Services “ In Nolo you can trust.” THE NEW YORK TIMES “ Nolo is always there in a jam as the nation’s premier publisher of do-it-yourself legal books.” NEWSWEEK “ Nolo publications…guide people simply through the how, when, where and why of the law.” THE WASHINGTON POST “ [Nolo’s]…material is developed by experienced attorneys who have a knack for making complicated material accessible.” LIBRARY JOURNAL “ When it comes to self-help legal stuff , nobody does a better job than Nolo…” USA TODAY “  e most prominent U.S. publisher of self-help legal aids.” TIME MAGAZINE “ Nolo is a pioneer in both consumer and business self-help books and software.” LOS ANGELES TIMES  e Trusted Name (but don’t take our word for it) 10th edition How to Write a Business Plan by Mike McKeever TENTH EDITION JANUARY 2011 Editor RICHARD STIM Cover Design SUSAN PUTNEY Production MARGARET LIVINGSTON Proofreading CATHY CAPUTO CD-ROM Preparation ELLEN BITTER Index MEDEA MINNICH Printing DELTA PRINTING SOLUTIONS, INC. McKeever, Mike P. How to write a business plan / by Mike McKeever. 10th ed. p. cm. Includes index. Summary: “Contains the detailed forms and step-by-step instructions needed to prepare a well-thought-out, well- organized business plan.  e 10th edition has been completely updated with the laws, banking regulations, and resources” Provided by publisher. ISBN-13: 978-1-4133-1280-5 (pbk.) ISBN-10: 1-4133-1280-2 (pbk.) ISBN-13: 978-1-4133-1297-3 (e-book) ISBN-10: 1-4133-1297-7 (e-book) 1. Business planning. 2. New business enterprises Planning. 3. New business enterprises Finance. 4. Small business Planning. 5. Small business Finance. I. Title. HD30.28.M3839 2010 658.15’224 dc22 2010021162 Copyright © 1984, 1986, 1988, 1992, 1999, 2002, 2004, 2007, 2008, and 2010 by Mike McKeever. All rights reserved.  e NOLO trademark is registered in the U.S. Patent and Trademark Offi ce. Printed in the U.S.A. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Call 800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, California 94710. Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state. Dedication is book is dedicated to the memory of my late grandmother, Elizabeth Eudora Woodall Darby, whose inuence I acknowledged only recently. Acknowledgments After more than a decade of working with many people, I am amazed at the uniform spirit of goodwill and cooperation. My rst editor, Ralph “Jake” Warner, showed patience working with a rst-time author. My second editor, Lisa Goldoftas, challenged the grammar while gracefully deferring to my knowledge about the subject. Also at Nolo: Steve Elias designed many charts; Adam Stanhope educated me about computers; Mark Stuhr tuned sections on computer- related material; Stephanie Harolde worked her word processing wonders on the manuscript; Terri Hearsh designed the book; Eddie Warner gave helpful suggestions on online information; and many more folks at Nolo improved the book greatly. A special thanks to a number of generous individuals, each of whom knows a great deal about starting and operating a small business. Peg Moran, Terri Hearsh, Roger Pritchard, Jason Wallach, Harry Keller, Dan Peters, Sharyn Simmons, Larry Healy, and nally, Hugh Codding and Leroy Knibb of Codding Investments. For these and all my readers, clients, and students who have shared their hopes, dreams, and problems with me over the years, thank you for your help. e best parts are yours—all the mistakes are mine. Many of your stories and suggestions appear here in disguised form. I hope all the readers will prot from your wisdom and generosity. Mike P. McKeever Santa Rosa, California About the Author Mike P. McKeever’s education, work experience, business ownership, writing, and teaching careers give him a broad and unique perspective on business planning. He has a BA in Economics from Whittier College and a Master’s in Economics from the London (England) School of Economics, and has done postgraduate work in nancial analysis at the USC Business School. Mike has taught classes at numerous community colleges in entrepreneurship and small business management. He has published articles on entrepreneurship for Dow Jones publications, the Sloan Publications Business Journal, and numerous newspapers and periodicals. Mike has successfully purchased, expanded, and sold a number of businesses, including a manufacturing company, tune-up shop, gas station, retail store, and commercial building. He has worked for a variety of companies ranging from small groceries to multimillion-dollar manufacturers. As an independent business broker, he assessed the strengths and weaknesses of hundreds of companies. As senior nancial analyst for a Fortune 500 company, he wrote and analyzed nearly 500 business plans. Currently, Mike enjoys email correspondence with a few readers relating to business plan issues. He also acts as consulting controller and nancial advisor to an online retail business. You can contact him at mckeever.mp@gmail.com. Downloading Forms and Other Materials e printed version of this book comes with a CD-ROM that contains legal forms and other material. You can download that material by going to www.nolo.com/back-of-book/sbs.html. You’ll get editable versions of the forms, which you can ll in or modify and then print. Table of Contents Your Legal Companion 1 1 Benefits of Writing a Business Plan 5 What Is a Business Plan? 6 Why Write a Business Plan? 6 Issues Beyond the Plan 8 2 Do You Really Want to Own a Business? 11 Introduction 12 Self-Evaluation Exercises 13 How to Use the Self-Evaluation Lists 17 Reality Check: Banker’s Analysis 17 3 Choosing the Right Business 21 Introduction 22 Know Your Business 22 Be Sure You Like Your Business 24 Describe Your Business 24 Taste, Trends, and Technology: How Will the Future Affect Your Business? 30 Break-Even Analysis: Will Your Business Make Money? 34 What You Have Accomplished 47 4 Potential Sources of Money to Start or Expand Your Small Business 49 Introduction 51 Ways to Raise Money 51 [...]... Personality, Staffing Schedule, Job Descriptions, Specific Business Goals, Personal Financial Statement, Personal Background, Appendix, and Supporting Documents • Quick plan (one-day plan) If you know your business, are familiar with and able to make financial projections, and have done the necessary research, you may be able to create a plan in one day But understand that a quick plan is a stripped-down... writing a business plan For that reason, I have addressed this book to the business owner as a single individual rather than a husband-and-wife team, group, committee, partnership, or corporation And you’ll find that the same financial and analytical tools necessary to convince potential lenders and investors that your business idea is sound can also help you decide whether your idea is the right business. .. —Yogi Berra A re you concerned about whether you can put together a first-rate business plan and loan appli­ cation? Don’t worry How to Write a Business Plan contains detailed forms and step-by-step instruc­ tions designed to help you prepare a wellthought-out, well-organized plan Coupled with your positive energy and will to succeed, you’ll be able to design a business plan and loan package that you... 4 How to know what the customers want—today and, more important in the clothing business, to keep half-astep ahead 5 How to sell 6 How to manage inventory 7 How to judge people Your Likes and Dislikes Take a few minutes and make a list of the things you really like doing and those you don’t enjoy Write this list without thinking 16 | HOW TO WRITE A BUSINESS PLAN about the business simply concentrate... particular retail business a dress shop In so doing, I illustrate most of the planning concepts and techniques necessary to understand and raise money for any business As you read through the text you’ll meet Antoinette Gorzak, a friend of mine Antoinette wants to open a dress shop, and she has allowed me to use her plans and thought processes as an example of a complete and well-prepared business plan. .. What Kind of Plan Do You Need? You can use How to Write a Business Plan to write whatever type of plan best suits your needs: • Complete business plan A complete business plan is especially helpful for people who are starting a new business This form of plan is also excellent for convincing prospective 2  |  how to write a business plan backers to support your business You’ll be more successful in raising... inside and asked yourself some basic questions about who you are and what you are realistically qualified to do As a result, you should now have a better idea of whether you are willing to pay the price required to be successful as a small businessperson If you are still eager to have a business, you have said, “Yes, I am willing to make short-term sacrifices to achieve long-term benefits and to do whatever... Forecast, Profit and Loss Forecast, Capital Spending Plan, Cash Flow Forecast, Appendix, and Supporting Documents quick plan The “quick plan icon appears at the beginning of each chapter containing quick plan components and guides you to the sections you’ll need • Customized plan You can start with a quick plan and add components from the complete business plan to suit your needs When deciding what to. .. include and what to exclude, ask yourself: Which of my statements are the strongest? n Which statements do my backers want to see? n Note that the appendixes contain blank forms as well as business plans for a small service business, a manufacturing business, and a project development All the forms (except for the Loan Interest Calculation Chart) and business plans are included on the CD-ROM located at... preferably managed, a successful business in the same field as the proposed new business For example, if you have profitably run a clothing store for an absentee owner for a year or two, a lender may believe you are ready to do it on your own All you need is a good location, a sound business plan, and a little capital Then, watch out Neiman-Marcus! Further away from a lender’s ideal is the person who has sound . (one-day plan) . If you know your business, are familiar with and able to make financial projections, and have done the necessary research, you may be able to create a plan in one day. But. usually one person has the vision and energy to take an idea and turn it into a business by writing a business plan. For that reason, I have addressed this book to the business owner as a. individual rather than a husband-and-wife team, group, committee, partnership, or corporation. And you’ll find that the same financial and analytical tools necessary to convince potential lenders and