Information Sheet 8

Steve Bogash, Enterprise Consultant, Maryland Cooperative Extension

There are many types of business plans, but for the purposes of discussion we'll focus primarily on a summary business plan since it is most appropriate for small businesses. The summary business plan contains all the elements necessary for loan application and providing a pathway for the development of your enterprise. Other types of plans are operational business plans which are usually internal documents used to assess changes in operations and complete plans which are used to solicit megafunding as in a stock offering.

MISCELLANEOUS SUPPORT DOCUMENTS: Any or all of the following documents can provide support for your business proposal:

Your business plan is a highly personalized document that works to put the strong points of your venture in a highly positive light while downplaying the weaker points. Not all of the elements noted above are necessary in every plan, but it is important to paint a complete and accurate picture of your business plans to anyone that reads the document without your having to explain every part verbally.

Simply put, your marketing plan clearly lays out your strategy to sell your venture to both your customers and your potential investors and bankers. Getting this plan prepared will involve substantial research into the industry you wish to market in as well as a complete understanding of consumer motivations. Your marketing plan is a complete description of how you will get your product or service to market, build a market niche, maintain growth, and deal with future market change. Portions of the plan become templates and schedules for specific activities such as festival markets, newsletter mailings, advertising copy and other specific operations to promote your business.

POSITIONING: How do your customers perceive your business and its products? Since all decisions made by individuals and businesses are motivated by emotions, you must position your products and services to benefit from the market position that you choose. Look at how important brands are when we purchase any given product. With so many brands of a similar product competing for every consumer dollar it is certainly in every businesses best interest to create more than just a quality product. You must also develop an allure to help entice sales. Convince your buyers that they cannot do without your version of the product and you now have an excellent market position. The location of your business, the appearance of your entrance, employee attitude, employee appearance, and so many other factors all contribute to your business' position.

PRICING: Getting your price structure right for your business is one of the most effective marketing tools you have. Price conveys image, affects demand, and effectively targets specific market segments. Base your price structure on the value of the product or service to the customer, not costs plus profit. If your price structure fails to generate sufficient profit, then changes must be made.

1) Is the pricing scheme competitive?

2) Is there some perceived value inherent in higher prices?

3) Are prices to be based on cost plus some standard markup?

4) Why are your prices higher or lower than your competitors?

5) How will price effect consumer demand?

There are so many decisions to make regarding pricing and price policies below are some of the considerations that go into a complete pricing policy:

PRICING STRATEGIES: There are three primary strategies involving pricing: 1) Skimming the Cream". When there is limited competition you can charge what you like since substitution will be limited. 2) Matching the competition, this simple strategy guarantees that your prices will meet local standards. Ofttimes, a new marketer will slightly undercut the competition to expand market share. and 3) Substantially undercut competitors to exclude their market access.

PROFIT-ORIENTED GOALS: One way to determine your pricing is to base the mark-up on your goals for the company. You decide what the return on investment needs to be and set your prices accordingly.

SALES-ORIENTED GOALS: These are usually set to develop or maintain a particular market share and are very useful in new product introductions where the profit is less of a goal in the beginning. "Loss Leaders" are typically used by retailers to induce customers into the store or introduce a new product. In the "Loss Leader" you sell a product at or near cost in an effort to increase market share.

STATUS QUO PRICING: You choose to sell your products at a set price since everyone sells theirs at that price and no one wants to "rock the boat" and possibly set off a price war.

DISCOUNTS: Once you establish a price you can then look at various discount schemes to sell more product. Quantity discounts are common throughout the greenhouse industry as well as Senior Citizen discount plans and frequent buyer promotions.

COUPONS: Coupons have gotten to be extremely popular among consumers and retailers alike. The consumer gets a set deal based on your coupon and you have an easy method to measure advertising effectiveness through coupon returns. Be sure your pricing structure is balanced to handle the coupon deals or your end of year profit statements will suffer.

SHIPPING TERMS: If your business ships product in any way, you must have a policy for assessing freight charges and recouping shipping costs. This can be a very sensitive subject, especially when it comes to local deliveries. Spell everything out clearly so there is no question regarding the delivery cost.

SALES TERM AND CREDIT POLICIES: Sales terms allow customers to take a discount if the invoice is paid within a set period. Typically, the terms will read 2% 10 days, net 30. This means that you are providing for a quick pay discount of 2% if the bill is paid within 10 days, then until the end of the 30 days the full amount is due. Most sales terms also provide for a slow pay fee of 1.5-2% per month in finance charges. New charge customers are frequently COD for the first year or must pay 50% COD and the remainder, net 30. Spelling your policies out in writing can substantially limit disagreements later.

MARKET CHANNELS: All product is marketed through two primary channels, retail and wholesale. Retail marketing is selling product to the end user. Wholesale marketing is selling through a middleman, whom then sells it to the retail marketer. Each form of marketing has advantages and disadvantages that will ultimately affect choice of channels. Most smaller growers sell a larger proportion of their product directly to the consumer or end user, but sell some wholesale, while larger producers exclusively sell their product wholesale. This is call market mix, each business must determine this mix for themselves and it will vary as your business evolves.

ADVERTISING AND PROMOTION: For many advertising is synonymous with marketing but as you can see from all the other aspects of marketing it is only the most visible, or you hope it is the most visible. An example is probably the easiest way to illustrate the difference between advertising and promotion. Assume you are a retail marketer, your spring promotion centers around a theme called "A MONTH OF COLOR". Everyday you feature a different flowering plant in bloom at half price. In order to communicate your theme to the public you place radio and newspaper advertisements as well as explaining the idea in detail in your regular customer newsletter. To better focus the public on your goal, you lease a small tethered blimp and have special classes every Saturday in flower bed design. The promotion is the "Month of Color" and everything else that you do is advertising or promoting your products.

The promotion noted above would be only one aspect or part of your overall marketing plan. Your plan includes everything from pricing to the way your employees dress to your returns policies. Also included under market planning is your public facade which you manage through good public relations. Your activities in the community, appearances at festivals and newsletters all contribute to your public image. There is usually a blurry line between advertising and public relations. Everything you do in the public eye should be considered marketing and needs to be carefully planned.

First and foremost, a business plan gives you a path to follow and sets the stage for you to realize your future. A well written plan gives your investors or bankers a clear picture of your operation. In other words,"IT LETS THEM IN ON THE ACTION". Nothing is more important when soliciting money to start or expand your business than to provide the potential sources of funding with an understanding of your business. It will answer those all important questions like:

-Why do you need this money?

-How will the money be spent?

-How much risk is there in lending you the money?

-When will the money be paid back?

-What is the rate of return on investment?

plus many others that will be noted later in this section.

You can also use the plan as a communications tool when you need to familiarize personnel, suppliers, family members and others with your operations and goals. A more complete understanding of your objectives and methods of realization oftimes will solicit a great deal of support for your business that would be impossible without the thought and preparation that goes into the preparation of a written plan. It is very difficult for others to gain an understanding of your dreams for the venture through verbalization alone.

Most of us focus more on the production side of a business than the financial and marketing aspects. By taking the time to prepare a plan it will help you develop as a manager. The step-by-step method of business plan preparation will undoubtedly expose you to elements of your enterprise that may require more investigation or even actual weaknesses in your operation that you did not know existed. By thinking through all aspects of an operation you become much better prepared for the often harsh realities of the business world. In essence you get a chance to practice on paper before committing a penny. Your preparation and practice will increase your ability to make wise decisions.

A well prepared business plan saves you time and money by helping you as a manager to maintain focus. You will have better control over finances, marketing, growth and other business objectives. The business plan document itself can become a constant reminder of what you are supposed to be doing. Often in the high speed pace of business it is easy to get sidetracked and wander off onto unproductive areas or jobs that you clearly need to avoid.

1) What type of business do you have?

2) What is the purpose of the business?

3) In short "What is your business all about?"

4) What are your reasons for starting a business?

5) What service or product does your business market?

6) What is unique about your product or service?

7) Do you have related documentation to back up your product or service?

8) What is your product/services use?

9) What has led you to develop this product/service?

10) Is this product/service used with other products or services?

11) List the most likely objections to your product/service?

12) When will your product be available to market?

13) Who is your target clietele?

14) Who is your competition?

15) How will you differentiate your product/service from your competitors?

16) What is the cost of your product versus your competiton?

17) What are you doing that is special?

18) What are your advertising and promotion plans?

19) How will you finance company growth?

20) Do you have the managment resources to achieve your goals?

By laying your entire operation out on paper you provide yourself and your investors with a path. You work to follow that path and your investors have sufficient information to evaluate their participation in your venture.