MSU Extension Product Center

Planning Your Business

Tom Kalchik, MSU Product Center for Agriculture and Natural Resources

Creating a new venture, either a new business or a new product, requires three key elements:
• Innovative idea
• Entrepreneurial drive
• Resources to go to market

Let’s assume you have your innovative idea for a good hard cider product. The next element is entrepreneurial drive. At the end of this chapter is a self quiz to help you evaluate your entrepreneurial aptitude. (See Exhibit A) If you have any doubts, additional resources are listed under Exhibit B.
So now, all that’s left are the resources. What are they? Time. Money. Property, plant and equipment. Labels and other intellectual property. People. These can be significant items.

The first thing to realize is that you cannot do all of this alone. You will need a management team that will include yourself, perhaps employees/partners, family members, consultants and others. You will also need to convince people outside your business organization that your innovative idea is financially sound – likely bankers or other sources of financing. You need a business plan! The business plan is your sales brochure to convince others that you have a good innovative idea and the entrepreneurial drive to succeed. The specific sections are:
• Executive Summary
• Mission Statement, History, and Objectives
• Business Organization/Operations
• Marketing Plan
• Management/Human Resources
• Financial Plan
• Supporting Documents

Executive Summary is the first part of the business plan but the last section to write. It is a brief (one or two page) synopsis that tells the story of the proposal. It is commonly called the “elevator pitch.” Imagine that you are getting on an elevator on the first floor of a bank building and the loan officer who can provide you money for the project gets on with you. You have the time it takes for elevator to go to the fifth floor to present your idea to the loan officer. That is your Executive Summary.

Mission Statement, History, and Goals and Objectives contains general information about your business. The mission statement is a concise description of your core business values. The history should emphasize the experience of you and your management team to accomplish the plan. You will need four or five general goals that can be a combination of financial, marketing, operations, and production. Objectives under each goal are specific strategies to achieve the goal. These should extend over the first five years of your business.
Michigan Apple Committee/MSU Product Center

Business Organization/Operations includes:
• Organizational structure for your business (single proprietor, partnership, corporation, or cooperative)
• Reasons you elected to organize under this structure
• Business controls

You can include information about the accounting system you will use and who, on your management team will be responsible for accounting (you could also hire an outside accounting firm). If your business includes processing products, be sure to include an overview of the process and who will be responsible for controlling various aspects of the process, such as raw product purchasing, supplies purchasing, sanitation, food safety, etc.

The Marketing Plan needs to be extensive as this is how you will convert your hard work and planning into dollars that will pay you, your employees and partners, and your banker. You will need to clearly explain who will patronize your business and why. To determine this you will need market research to identify:
• Size of the industry in which you are competing
• Other businesses that will compete with you
• Relative size of those businesses in relation to your business
• Where the product(s) you are marketing are normally sold
• Relative volumes through those outlets.

Once you have this knowledge you can:
• Identify your target market(s) and the sizes of those markets either in number of consumers or dollars of sales or both
• Explain how and why your business will attract that market segment
• Identify the businesses that are most likely to compete for your market segment, anticipate how they might react to your entry into the market and strategize how you will address that reaction

You can include a SWOT analysis (strengths, weaknesses, opportunities and threats) for your business. Finally a detailed marketing strategy that explains how you can differentiate your business from your competitors’ and how that will attract your target audience to your business. The budget for marketing should also be included.

Management/Human Resources should include
• Résumé for each of the members of the management team, emphasizing qualifications to manage the business
• Job descriptions for the critical positions in the business should be included
• Organizational chart, showing the number of employees in each position.

The Financial Plan should state the assumptions you used in developing your business plan. These could include average selling prices per unit, production costs, cost of goods, sales targets, and more. The following statements should be part of this section of your plan:
• Balance sheet, preferably projecting 5 years (first year monthly, then annual)
• Profit and loss, preferably projecting 5 years (first year monthly, then annual)
• Cash flow, preferably projecting 5 years (first year monthly, then annual)

You may need to include your personal financial statements. Separate schedules showing start up costs, production budgets, marketing budget, distribution costs, etc. should be part of this section. A breakeven analysis should appear here. A sensitivity test in the form of expected case, worst case and best case scenarios with a description of the assumptions inherent in each scenario will prove useful.

Supporting Documents will include legal documents relating to your business organization. Letters of intent from suppliers, customers, critical partners and others should be included here. Any details about assumptions made in the business plan that were not explained in the appropriate sections could be inserted here. You may need to include proof of insurance to satisfy a banker or any other documents that might increase the chances for success.

Summary
The business plan is essential for communicating to partners, investors and financiers that you have an economically viable business idea. It will serve as your “sales brochure” for you new business or product.