A business plan is a critical element for existing as well as start-up businesses. Your business plan should be a living document that acts as a guide helping you stay on track with your vision. It can also help you secure financing when you need it.

Writing a business plan does not have to be too daunting a task, but it is a fair amount of work the first time you tackle it. I say the first time because a business plan should be updated annually as a business maintenance exercise.

When you make a change to the way you do business, such as deciding to add a new service or to cancel an existing one, refer to your business plan to be sure the changes are going to bring you closer to your goals. If the answer is yes, update your business plan and go forward with confidence.

THE ESSENTIALS OF A BUSINESS PLAN

You have your vision, now it is time to show how it will all come together. The basic elements of a business plan are outlined below, along with some tips to get you started.

Executive Summary—This is where you boldly state your intention and make your first impression with potential financiers. Like most first impressions, you want to be clear and confident. Your summary should present a high-level overview of your plan, highlighting key “hooks” to capture your bankers’ interest and make them want to read on. Subsections should include the objective of your plan and key points about your business that will make it stand out from other similar businesses. A mission statement is usually included here as well.

Company Summary—If your business plan is intended to support an existing business, this is where you describe your operation as it exists currently. Include information about the ownership structure, the facility itself, some history about your business, and some key financial highlights.

If you are writing a business plan for a start-up business, describe how your business will be set up (sole proprietorship, partnership, LLC, etc.) and in general what you intend to do with the business. If you have identified a property, describe it here. If not, explain what you will look for in a facility. A subsection will include expenses that you expect to incur prior to opening for business.

Products and Services—As the section heading implies, this is where you detail what your business offers to its customers. Share enough specifics that a reader unfamiliar with the horse business can turn around and describe the nature of your operation to another person. Demonstrate your knowledge of important points about your services, but avoid lengthy narrative with minutiae that would only be relevant to someone involved in carrying out the work.

Market Analysis—Describe who your customers are and how your business will meet their needs better than your competitors. Show what you know about your target customers and the business you will operate. Describe the competitive environment in the area where you have chosen to do business. Some general statements about the demographics of the area, including population and growth trends, are pertinent. Focus on your specific target market and your understanding of its preferences and buying patterns.

Strategy and Implementation—Two subsections of this category, your marketing plan and your sales strategy, will describe how you intend to attract your target customers to your business, then how you will close the deal with them. A third subsection will anticipate time frames to put your plan into action.

Marketing Plan—This positions your business in the context of your overall environment. Detail the aspects of your business that give you a competitive distinction from your competitors and how you intend to share that with prospective clients. Outline your planned advertising campaigns to the various target markets that you identified in the previous section. Will you have a website? This is the place to describe what the site will do to promote your business and how you will use it to communicate and/or interact with your clients.

Sales Strategy—Explain how you will secure new business from your existing and/or prospective customers and provide a sales forecast. To support your forecast, provide a price list showing what you will collect for each service and product. For each source of revenue, estimate how many “units” you will sell and the total revenue you will receive.

How specific should this be? If you’re seeking funding, a bank will want to see monthly detail for the first year, with yearly projections thereafter. They understand that forecasts are a “best guess” and that the picture gets cloudier as projections get further out. If you are an existing business, your narrative should include a sales history of up to five years to substantiate your estimates.

Implementation—You need a timetable that includes key milestones and dates you plan to reach them. In dealing with a bank, an expected budget for reaching each milestone provides perspective on how funds loaned to you would be spent.

Management—Describe the labor force needed to accomplish all the work involved in running your business. Identify each of the necessary roles, their responsibilities, and put names to them if possible. A table will lay out your anticipated personnel expenses.

Financial Plan—Your financial plan consists of several standard financial statements that demonstrate how efficiently your business uses money, how profitable it is, whether or not you will have cash when you need it, and the overall health of the business. First, establish a context that supports your financial projections, and then dive into the nitty-gritty number-crunching.

Assumptions—Start with your basic business assumptions. These must be clear and realistic, as they pertain to your ability to meet the financial plan that you will lay out in the following subsections. Assumptions include things such as your expectation that you will maintain a stated percentage of boarding occupancy, that you will charge certain rates, or that you will get preferred pricing on materials for a building project. For the bank, include statements about the long- and short-term interest rates that you expect to pay, as well as the taxes your business will pay. If you are working from an existing business, explain why and how you believe your past performance will be improved as a result of the project you seek to fund.

Break-Even Analysis—This shows how much revenue you need to meet both fixed and variable costs. This analysis makes a statement to the banker about his investment risk. The longer a stretch of time before you break even, the riskier the investment looks to a banker, because much can change over time. Reliable assumptions in the previous subsection will bolster the credibility of your whole document.

Profit and Loss Table—This reflects the progress your business will make toward your financial goals. Forecast increases (of course!) in your sales and gross margins. For the most part, the numbers will do the “talking” in this section. Up to this point, your business plan has focused on revenues; this table is where most of your expenses will be entered. In your explanation of the table, describe how actions you take to bring in new clients and control costs, for example, will lead to profitability. The P&L tells you whether or not you are making money.

Cash Flow Analysis—This looks at both the balance of your reserves (money you have immediately available to the business) and your net cash flow. While it is all right for net cash flow to dip below zero temporarily—in your slow months, for example— it is important that you maintain a positive cash balance.

Balance Sheet—This snapshot of your company's financial health provides a summary of your company's assets, liabilities, and net worth. Your assets are the resources that your business controls, including any facilities, materials, and accounts receivable. Your liabilities are the obligations that you owe to others, such as accounts payable, taxes, loans and payroll. Your overall equity (net worth) is the balance left over when you subtract liabilities from assets.

The Small Business Administration’s website, www.sba.gov, is an excellent resource with a variety of tools to help business owners and prospective business owners through the planning and writing process.

Whether you are planning improvements to your existing horse business or you are considering the adventure of starting a new one, put your vision to paper in the form of a business plan before you trot off to see your friendly neighborhood banker. If you wish to borrow money, you must be able to clearly explain to the bank how it will get its money back (and then some) if it makes a loan. That, after all, is the basis of its business plan.

Stephen Hall