Creating a Formal Business Plan: Assignments 3 and 4 explained

This document provides an overview of the process you will go through to create a formal business plan.
It can also be used as a checklist as you proceed through the process to keep track of tasks that you have
completed and those you have not. You have been provided with 2 templates to use to develop your
business plan:

 Financial spreadsheets Excel workbook

 Business plan Word document

Download these documents from the course site. Save a copy for reference. Save a second copy to work
with. You will complete and submit the second “working” copies of these two documents for
Assignments 3 and 4 (see below).

Detailed, step-by-step instructions on how to use these template documents to create a complete
business plan are included in the templates. Read all instructions carefully and follow the guidance and
content suggestions they provide you with. You will undertake the process of creating a formal business
by completing Assignment 3: Business plan Draft – Financials and Assignment 4: Business plan Draft –
Descriptive Components.

Assignment 3: Business plan Draft – Financials

For this assignment you will gather and assemble the financial information that will be included in your
formal business plan. You will use the financial spreadsheets Excel workbook to complete this task.
Using the spreadsheets contained in the workbook file, you will input the numbers and financial figures
required to create various financial statements and schedules. The workbook file includes the formulas
used to calculate various figures and totals. Your task is to complete all of the spreadsheets in the
workbook by inputting the required information. Step-by-step instructions on where to input required
information and numbers are provided in the workbook file. Please remember that the numbers that
you enter on the spreadsheets should be “real”, that is obtained from reference source (e.g. the price of
a piece of office furniture that you found on a website that sells office furniture). Any estimates you
include should be realistic in that you should be able to justify them or demonstrate that they are
reasonable.

To get started:

Proceed to the Draft Financial Plan section below, which describes the tasks you will undertake to
assemble the financial information necessary to complete the Financial Plan section of your formal
business plan, which you will submit for Assignment 4.

Open the Business plan Word document. Review the Financial Plan section and List of Tables to
familiarize yourself with the kinds of financial information that you will include in your completed formal
Business Plan (Assignment 4).

Open the Financial Spreadsheets Excel workbook (your working copy). Go to the ControlPanel
worksheet and read the instructions provided. Next, review all of the spreadsheets contained in the
workbook to familiarize yourself with the structure of the workbook and the content of the different
spreadsheets, including the kinds of information and numbers you will be inputting.
Now you are ready to start inputting information. Research (look up) current prices and costs of various
items and services included on the spreadsheets. Keep track of the source of this information. An
example of a table tool you can use to keep track of this information is provided in the Operations Plan
Section of the Business plan Word document (page 9).

For Assignment 3 submit:

1. your completed Financial Spreadsheets Excel workbook

2. a separate Excel workbook or Word document that includes that includes the source
information for prices/costs included in your spreadsheets. You can present this information in
the form of a table, following the example tables included in the Business plan Word document
(for example, see page 9).

Assignment 4: Business plan Draft – Descriptive Components

MAXIMUM PAGE LIMIT IS 40 PAGES. You cannot achieve full marks if you go over this limit.

For this assignment you will create a completed first draft of a formal business plan using the Business
plan Word document template provided. This template provides you with the structure and content of
the business plan you will submit . Detailed instructions and descriptions of the content to include are
provided throughout the template. The template also includes examples of figures and tables that will
strengthen your business plan. Replace these figures and tables with ones you create based on your own
business information. For each written section of the business plan, carefully review the instructions
provided and then replace them, by adding the required written information about your business.

For Assignment 4 submit the completed draft of a business plan.

To get started preparing your Business Plan Draft

Open your working copy of the Business plan Word document template. Read and follow the
instructions on page 2. Review the complete document to familiarize yourself with its structure and
content, including the nature of the detailed instructions and guidance provided in each section.

Insert work from the Essential Initial Research and Business Model you completed into The Business
Plan Draft. For Assignment 2, you conducted a multi-level business environment analysis using the
following tools PESTEL model, Porter’s 5 Forces model, market profile analysis, SWOT analysis and Core
Competency or Founder Fit analysis. There are two ways to include the results from your societal,
industry, market, and firm-level analyses in your business plan. The best choice is usually to disburse the
relevant parts of those analyses throughout the entire plan to support the decisions and strategies
outlined in the plan. An alternative choice is to include the results from all or some of the relevant parts
of those analyses as their own sections in the business plan. The first option tends to strengthen the
business plan more than the second because it explicitly ties your analyses to the decisions influenced
by those analyses.

• Integrate the relevant and important results from your societal-, industry-, market-, and firm-
level analyses into your plan, either as distinct sections of the plan or embedded into the
other sections to support the outlined decisions and strategies
 • Ensure that all analyses are fully and properly referenced in the business plan to establish
and ensure your and your plan’s credibility as an entrepreneur and to meet ethical
requirements to cite the sources for the information used

• Avoid harming your plan’s credibility by failing to indicate the sources for all of the
information you include. Whenever you make an assumption that you should later replace
with a factual or expertly- based statement or number, flag the assumption by using a
distinctly coloured font.

During the second stage of business plan development, you developed your business model by creating
a Business Model Canvas (Assignment 3). As no separate section in a business plan specifically describes
a business model, you need to incorporate your business model elements into the plan wherever they
fit best. Where the business model elements fit into a business plan will usually be fairly self-evident.
The important thing is to ensure that all of the elements of your business model are reflected in your
business plan.

• Include each element of your business model in the appropriate parts of your business plan

Fill in all of the sections of the business plan draft template document.

Draft Introduction
• Write the following sections:
◦ a brief description of your business concept
◦ a brief description of the purpose for your business idea
◦ a brief history and description of the evolution of the business concept
◦ a vision
◦ a mission
◦ a values statements
◦ a first draft set of goals
Draft Operations Plan
• Write an operations plan
• Ensure that all numbers included in the operations plan are
◦ sourced so a reader knows from where it came,
◦ explained so they know how it was calculated, or
◦ flagged as being an estimate that will be replaced with a true number with a source
Draft Human Resources Plan
• Write a human resources plan
• Ensure that you show how you will earn a living while starting the business
• Ensure that all numbers included in the human resources plan are
 ◦ sourced,
◦ explained, or
◦ flagged as being an estimate that will be replaced with a true number with a source
Draft Marketing Plan
• Write a marketing plan
• Ensure that all numbers included in the marketing plan are
◦ sourced,
◦ explained, or
◦ flagged as being an estimate that will be replaced with a true number with a source
Draft Financial Plan
• Plan how you will back up every number through one or both of the following:
◦ Explanations in the body of your plan, maybe along with your schedules, or
◦ Notes included with your financial statements
• Only insert a number for a particular item once and flag this cell
◦ Very few numbers in your projected financial statements should be input directly
and each directly inputted number should be flagged using cell shading or another
means so it is easier to fix any errors in the statements.
• Whenever a number is required more than once, ensure it transfers forward by formula only
• Prepare all of the following schedules (if applicable) that you will need to feed numbers into
your projected cash flow statements:
◦ Sales schedule, if you will sell more than one product
◦ Project schedule
◦ Cash from sales schedule, cash from receivables schedule, and accounts receivable
schedule
◦ Cash purchase schedule, credit purchase schedule, and accounts payable schedule
◦ Credit card collections schedule, if you will need to calculate your costs for
accepting credit card payments from customers (you can normally consider credit
card payments as cash payments in your cash flow statement)
◦ Inventory schedules
◦ Start-up cost schedule
◦ Capital cost allowance schedule or depreciation schedule
◦ Payroll schedule
◦ Operating loan schedule
 ◦ Term loan schedule, especially if you may make extra payments toward it before
the term expires
◦ Promotions schedule, if you expect to use several promotional methods
◦ Prepayment schedule, if you expect to prepay insurance and similar expenses
◦ Other schedules that are needed
• Prepare projected cash flow statements
• Input the numbers from your schedules by formula into the projected cash flow statements.
You might also discover the need to develop a schedule after you have first tried inputting
the numbers directly into the projected cash flow statements.
• Ensure that the written part and the financial part tell exactly the same story using the exact
same numbers and sources.
◦ Note: you will almost certainly have to estimate some numbers while preparing the
projected cash flows. Immediately upon estimating the numbers, go to the written
part of your plan and include them there.
• Prepare your projected income statements and projected balance sheets by formula only
• Calculate your taxes owing and feed these back into your projected cash flow statement
• Calculate your retained earnings
• Correct your statements until your balance sheet balances
Making the Business Plan Realistic
At this stage, your projected financial statements in your draft business plan are almost guaranteed to
be unrealistic and undesirable. Your projected cash balances and profit levels will be unrealistic, either
too high or too low. The original amounts you had planned to invest in your business or to acquire
through investors will probably be inadequate. In general, your draft plan will have many weak areas
and many holes to fill, but it should provide you with a great foundation upon which to build a realistic
and desirable business plan.
The purpose of this stage is to make your business realistic. You do this by adjusting your proposed
business model and your plans and strategies as presented in both the written and financial parts of
your plan.
• Replace as many of the assumptions (those items flagged with a distinctly coloured font) as
possible with factual and expert information and numbers while always indicating the
sources for the new information and numbers
• Review and revise the sales projections to make them more realistic by comparing the
projections to industry norms and available comparative data with similar companies. Review
and revise as necessary both the sales projections model used and the assumptions fed into
the model to generate the monthly sales figures.
• Decide what the appropriate range of end-of-month cash balances is for your type of
business
• Eliminate any negative end-of-month cash balances by taking steps to turn each of these into
positive numbers that fall within your target range by adjusting one or more of the following:
◦ Planned loan amounts (operating and/or term loan amounts)
◦ Planned owner investment amounts (or draw from built-up investment accounts)
◦ Planned amounts in schedules (increase prices, increase sales amounts, decrease
expenses)
• An excessive cash balance at the end of a month indicates poor cash management practices.
Eliminate any excessive end-of-month cash balances by reducing each of these numbers so
they fall within your target range by doing one or more of the following:
◦ Use the excess money to generate more profits (expand your business, purchase an
asset you need, etc.)
◦ Use the excess money to pay down operating loans (and possibly term loans)
◦ Invest the excess money in financial investments
◦ Distribute some of the cash as dividends or owner draws
◦ Adjust planned amounts in schedules (decrease prices, decrease sales amounts,
increase expenses)
• Simultaneously adjust your goals, strategies, and plans in your written and financial
projections of your plan to make your projected financial statements realistic
• Analyze your projected financial statements and develop plans to correct the elements that
are unrealistic and undesirable
◦ For example, if your planned start-up financing is too high to be realistic, you might
choose to downscale some elements
▪ On the expense side, you might plan to start with a smaller facility, fewer
employees, less inventory, and different advertising methods. On the
revenue side, you might project lower sales because of your smaller
facility, fewer employees, and so on.
▪ You might also plan to finance some of your expansion through retained
earnings rather than by taking out a large initial loan or by giving up a
higher amount of ownership to an investor.
• Continually adjust the written and financial sections of your draft plan to reflect your new
goals, strategies, and plans. This will be an iterative process since everything is connected
and each change will have a ripple effect throughout your plan.
• Adjust the amounts in your schedules to reflect your planned changes (increase prices,
increase sales amounts, decrease expenses)
• Use a series of ratio analyses as you incorporate your new goals, strategies, and plans
• Continually compare your ratios to industry average ratios
 • Continually compare your ratios to what is expected and desirable for a business like yours
• Continually adjust the written and the financial parts of your plan until your ratios are
desirable and realistic relative to industry standards
Making the Business Plan Appeal to Stakeholders and Desirable to the Entrepreneur
You should now have a second full draft of your business plan. It should be much more realistic than
your first draft, but is it unlikely to be desirable to you as an owner or appealing to your potential
investors. The purpose of this stage is to retain, and possibly improve, the realism of your plan while
making it desirable and appealing.
• Determine your medium- and longer- term goals for your business as they relate to what you
want to get out of it
◦ Based on your goals and on the amount of financing you require, identify the most
desired sources of financing for your venture and incorporate those into your plan
to indicate how you will meet your financing needs
• As you fulfill the following requirements, incorporate all of the needed elements in your
business plan to attract your targeted investors and make them want to invest in your
company
• As you identify and analyze your critical success factors by completing what-if analyses on
your financial spreadsheets, continue to simultaneously adjust your goals, strategies, and
plans in your written and financial projections until
◦ you are satisfied that you are prepared to deal with issues that will affect your
critical success factors, and
◦ your projected cash flow statements, income statements, and balance sheets are
realistic, consistent with healthy industry norms, and meet realistic expectations
and aspirations for a healthy business
• Use a copy of your spreadsheets and change some key numbers to see what happens
◦ For example, you might discover that you are particularly vulnerable if your sales
end up being less than you had expected (and/or challenged if sales end up being
higher than expected). Sales levels, then, is one critical success factor.
• Determine what the impact would be on your business if the critical success factors are
impacted in a way you had not planned on
◦ For example, when you examine sales as a critical success factor, you might
discover that if sales are 3% less than you had planned (maybe because of an
economic downturn or the emergence of a new competitor), your entire profits
evaporate
◦ It might also be true that you will run into cash flow or capacity problems if your
sales end up being higher than you are planning for
• Decide whether you need to make adjustments to your goals, strategies, and plans in your
business plan to reduce your vulnerability to changes to the critical success factors, or
 whether you can instead adjust your goals, strategies, and plans to prepare for any changes
that might occur to the critical success factors
◦ For example, you might decide to change the pricing, distribution, and promotions
strategies in your business plan so that you would still break even if your sales
levels were 8% less than expected
◦ Alternatively, instead of changing your marketing strategy in your plan, you could
describe sales levels as a critical success factor and include a description of how and
at what point you will implement another strategy if sales levels are not as
expected, and describe what your strategy is
• Decide how to present your analysis of your critical success factors
• If appropriate for your business, you can include three sets of projected financial statements
in your business plan: most likely, optimistic, and pessimistic
Finishing the Business Plan
• Revise your goals section to ensure the included goals will best meet your purposes and will
resonate with your target readers
◦ Note: your goals will have changed dramatically between when you first wrote
them and how they should look once the plan is completed. Although not required,
it can be effective to follow each goal with a note about where in the plan your
strategies are located for achieving that goal.
• Write your executive summary
• Proofread to ensure that the written and financial parts of the plan are completely consistent
• Proofread to remove spelling, grammar, formatting, calculation, or other errors
◦ If required, have a skilled proofreader complete this task for you or with you
• Write a letter of transmittal and later customize it for targeted readers