*This information was taken from the U.S. Small Business Administration home page at http;//






By the end of this workshop, you should be able to:


*    Understand the role of the business plan.

*    List several reasons for developing a business plan.

*    Identify sources where you can get help in developing a

     business plan.

*    Identify the type of information to include in the business


*    Prepare an outline for a business plan.




Below is an outline for a business plan. Use this model as a

guide when developing the business plan for your business.


Elements of a Business Plan


1. Cover sheet

2. Statement of purpose

3. Table of contents


I. The Business

    A. Description of business

    B. Marketing

    C. Competition

    D. Operating procedures

    E. Personnel

    F. Business insurance

    G. Financial data


II. Financial Data

    A. Loan applications

    B. Capital equipment and supply list

    C. Balance sheet

    D. Breakeven analysis

    E. Pro-forma income projections (profit & loss statements)

         -     Three-year summary

         -     Detail by month, first year

         -     Detail by quarters, second and third years

         -     Assumptions upon which projections were based

    F. Pro-forma cash flow

         -     Follow guidelines for letter E.


III. Supporting Documents

         -     Tax returns of principals for last three years

         -     Personal financial statement (all banks have these


         -     In the case of a franchised business, a copy of

               franchise contract and all supporting documents

               provided by the franchisor

         -     Copy of proposed lease or purchase agreement for

               building space

         -     Copy of licenses and other legal documents

         -     Copy of resumes of all principals

         -     Copies of letters of intent from suppliers, etc.




What goes in a business plan? This is an excellent question. And,

it is one that many new and potential small business owners

should ask, but oftentimes don't ask. The body of the business

plan can be divided into four distinct sections: 1) the

description of the business, 2) the marketing plan, 3) the

financial management plan and 4) the management plan. Addenda to

the business plan should include the executive summary,

supporting documents and financial projections.




In this section, provide a detailed description of your business.

An excellent question to ask yourself is: "What business am I

in?" In answering this question include your products, market and

services as well as a thorough description of what makes your

business unique. Remember, however, that as you develop your

business plan, you may have to modify or revise your initial



The business description section is divided into three primary

sections. Section 1 actually describes your business, Section 2

the product or service you will be offering and Section 3 the

location of your business, and why this location is desirable (if

you have a franchise, some franchisors assist in site selection).


1. Business Description


When describing your business, generally you should explain:


     1.     Legalities - business form: proprietorship,

            partnership, corporation. The licenses or permits

            you will need.

     2.     Business type: merchandizing, manufacturing or


     3.     What your product or service is.

     4.     Is it a new independent business, a takeover, an

            expansion, a franchise?

     5.     Why your business will be profitable. What are the

            growth opportunities? Will franchising impact on

            growth opportunities?

     6.     When your business will be open (days, hours)?

     7.     What you have learned about your kind of business

            from outside sources (trade suppliers, bankers, other

            franchise owners, franchisor, publications).


A cover sheet goes before the description. It includes the name,

address and telephone number of the business and the names of all

principals. In the description of your business, describe the

unique aspects and how or why they will appeal to consumers.

Emphasize any special features that you feel will appeal to

customers and explain how and why these features are appealing.


The description of your business should clearly identify goals

and objectives and it should clarify why you are, or why you want

to be, in business.


THE BUSINESS PLAN -   2. Product/Service


Try to describe the benefits of your goods and services from your

customers' perspective. Successful business owners know or at

least have an idea of what their customers want or expect from

them. This type of anticipation can be helpful in building

customer satisfaction and loyalty. And, it certainly is a good

strategy for beating the competition or retaining your

competitiveness. Describe:


     1.     What you are selling.

     2.     How your product or service will benefit the


     3.     Which products/services are in demand; if there will 

            be a steady flow of cash.

     4.     What is different about the product or service your

            business is offering.


THE BUSINESS PLAN -    3. The Location


The location of your business can play a decisive role in its

success or failure. Your location should be built around your

customers, it should be accessible and it should provide a sense

of security. Consider these questions when addressing this

section of your business plan:


     1.     What are your location needs?

     2.     What kind of space will you need?

     3.     Why is the area desirable? the building desirable?

     4.     Is it easily accessible? Is public transportation

            available? Is street lighting adequate?

     5.     Are market shifts or demographic shifts occurring?


It may be a good idea to make a checklist of questions you

identify when developing your business plan. Categorize your

questions and, as you answer each question, remove it from your



THE BUSINESS PLAN -     The Marketing Plan


Marketing plays a vital role in successful business ventures. How

well you market you business, along with a few other

considerations, will ultimately determine your degree of success

or failure. The key element of a successful marketing plan is to

know your customers -- their likes, dislikes, expectations. By

identifying these factors, you can develop a marketing strategy

that will allow you to arouse and fulfill their needs.


Identify your customers by their age, sex, income/educational

level and residence. At first, target only those customers who

are more likely to purchase your product or service. As your

customer base expands, you may need to consider modifying the

marketing plan to include other customers.


Develop a marketing plan for your business by answering these

questions. (Potential franchise owners will have to use the

marketing strategy the franchisor has developed.) Your marketing

plan should be included in your business plan and contain answers

to the questions outlined below.


     1.     Who are your customers? Define your target market(s).

     2.     Are your markets growing? steady? declining?

     3.     Is your market share growing? steady? declining?

     4.     If a franchise, how is your market segmented?

     5.     Are your markets large enough to expand?

     6.     How will you attract, hold, increase your market

            share? If a franchise, will the franchisor provide   

            assistance in this area? Based on the franchisor's

            strategy? how will you promote your sales?

     7.     What pricing strategy have you devised?


Appendix I contains a sample Marketing Plan and Marketing Tips,

Tricks and Traps, a condensed guide on how to market your product

or service. Study these documents carefully when developing the

marketing portion of your business plan.


THE BUSINESS PLAN -    1. Competition


Competition is a way of life. We compete for jobs, promotions,

scholarships to institutes of higher learning, in sports -- and

in almost every aspect of your lives. Nations compete for the

consumer in the global marketplace as do individual business

owners. Advances in technology can send the profit margins of a

successful business into a tailspin causing them to plummet

overnight or within a few hours. When considering these and other

factors, we can conclude that business is a highly competitive,

volatile arena. Because of this volatility and competitiveness,

it is important to know your competitors.


Questions like these can help you:


     1.     Who are your five nearest direct competitors?

     2.     Who are your indirect competitors?

     3.     How are their businesses: steady? increasing?


     4.     What have you learned from their operations? from

            their advertising?

     5.     What are their strengths and weaknesses?

     6.     How does their product or service differ from yours?


Start a file on each of your competitors. Keep manila envelopes

of their advertising and promotional materials and their pricing

strategy techniques. Review these files periodically, determining

when and how often they advertise, sponsor promotions and offer

sales. Study the copy used in the advertising and promotional

materials, and their sales strategy. For example, is their copy

short? descriptive? catchy? or how much do they reduce prices for

sales? Using this technique can help you to understand your

competitors better and how they operate their businesses.


THE BUSINESS PLAN  -    2. Pricing and Sales


Your pricing strategy is another marketing technique you can use

to improve your overall competitiveness. Get a feel for the

pricing strategy your competitors are using. That way you can

determine if your prices are in line with competitors in your

market area and if they are in line with industry averages.


Some of the pricing strategies are:


     *     retail cost and pricing

     *     competitive position

     *     pricing below competition

     *     pricing above competition

     *     price lining

     *     multiple pricing

     *     service costs and pricing (for service businesses


           - service components

           - material costs

           - labor costs

           - overhead costs


The key to success is to have a well-planned strategy, to

establish your policies and to constantly monitor prices and

operating costs to ensure profits. Even in a franchise where the

franchisor provides operational procedures and materials, it is a

good policy to keep abreast of the changes in the marketplace

because these changes can affect your competitiveness and profit



Appendix 1 contains a sample Price/Quality Matrix, review it for

ideas on pricing strategies for your competitors. Determine which

of the strategies they use, if it is effective and why it is



THE BUSINESS PLAN -  3. Advertising and Public Relations


How you advertise and promote your goods and services may make or

break your business. Having a good product or service and not

advertising and promoting it is like not having a business at

all. Many business owners operate under the mistaken concept that

the business will promote itself, and channel money that should

be used for advertising and promotions to other areas of the

business. Advertising and promotions, however, are the life line

of a business and should be treated as such.


Devise a plan that uses advertising and networking as a means to

promote your business. Develop short, descriptive copy (text

material) that clearly identifies your goods or services, its

location and price. Use catchy phrases to arouse the interest of

your readers, listeners or viewers. In the case of a franchise,

the franchisor will provide advertising and promotional materials

as part of the franchise package, you may need approval to use

any materials that you and your staff develop. Whether or not

this is the case, as a courtesy, allow the franchisor the

opportunity to review, comment on and, if required, approve these

materials before using them. Make sure the advertisements you

create are consistent with the image the franchisor is trying to

project. Remember the more care and attention you devote to your

marketing program, the more successful your business will be.


A more detailed explanation of the marketing plan and how to

develop an effective marketing program is provided in the

Workshop on Marketing. See Training Module 3 - Marketing Your

Business for Success.




Managing a business requires more than just the desire to be your

own boss. It demands dedication, persistence, the ability to make

decisions and the ability to manage both employees and finances.

Your management plan, along with your marketing and financial

management plans, sets the foundation for and facilitates the

success of your business.


Like plants and equipment, people are resources -- they are the

most valuable asset a business has. You will soon discover that

employees and staff will play an important role in the total

operation of your business. Consequently, it's imperative that

you know what skills you possess and those you lack since you

will have to hire personnel to supply the skills that you lack.

Additionally, it is imperative that you know how to manage and

treat your employees. Make them a part of the team. Keep them

informed of, and get their feedback regarding, changes. Employees

oftentimes have excellent ideas that can lead to new market

areas, innovations to existing products or services or new

product lines or services which can improve your overall



Your management plan should answer questions such as:


     *     How does your background/business experience help you

           in this business?

     *     What are your weaknesses and how can you compensate

           for them?

     *     Who will be on the management team?

     *     What are their strengths/weaknesses?

     *     What are their duties?

     *     Are these duties clearly defined?

     *     If a franchise, what type of assistance can you expect

           from the franchisor?

     *     Will this assistance be ongoing?

     *     What are your current personnel needs?

     *     What are your plans for hiring and training personnel?

     *     What salaries, benefits, vacations, holidays will you

           offer? If a franchise, are these issues covered in the

           management package the franchisor will provide?

     *     What benefits, if any, can you afford at this point?


If a franchise, the operating procedures, manuals and materials

devised by the franchisor should be included in this section of

the business plan. Study these documents carefully when writing

your business plan, and be sure to incorporate this material. The

franchisor should assist you with managing your franchise. Take

advantage of their expertise and develop a management plan that

will ensure the success for your franchise and satisfy the needs

and expectations of employees, as well as the franchisor.




Sound financial management is one of the best ways for your

business to remain profitable and solvent. How well you manage

the finances of your business is the cornerstone of every

successful business venture. Each year thousands of potentially

successful businesses fail because of poor financial management.

As a business owner, you will need to identify and implement

policies that will lead to and ensure that you will meet your

financial obligations.


To effectively manage your finances, plan a sound, realistic

budget by determining the actual amount of money needed to open

your business (start-up costs) and the amount needed to keep it

open (operating costs). The first step to building a sound

financial plan is to devise a start-up budget. Your start-up

budget will usually include such one-time-only costs as major

equipment, utility deposits, down payments, etc.


The start-up budget should allow for these expenses.


                           Start-up Budget


     * personnel (costs prior to opening)

     * legal/professional fees

     * occupancy

     * licenses/permits

     * equipment

     * insurance

     * supplies

     * advertising/promotions

     * salaries/wages

     * accounting

     * income

     * utilities

     * payroll expenses


An operating budget is prepared when you are actually ready to

open for business. The operating budget will reflect your

priorities in terms of how your spend your money, the expenses

you will incur and how you will meet those expenses (income).

Your operating budget also should include money to cover the

first three to six months of operation. It should allow for the

following expenses.


                          Operating Budget


     * personnel

     * insurance

     * rent

     * depreciation

     * loan payments

     * advertising/promotions

     * legal/accounting

     * miscellaneous expenses

     * supplies

     * payroll expenses

     * salaries/wages

     * utilities

     * dues/subscriptions/fees

     * taxes

     * repairs/maintenance


The financial section of your business plan should include any

loan applications you've filed, a capital equipment and supply

list, balance sheet, breakeven analysis, pro-forma income

projections (profit and loss statement) and pro-forma cash flow.

The income statement and cash flow projections should include a

three-year summary, detail by month for the first year, and

detail by quarter for the second and third years.


The accounting system and the inventory control system that you

will be using is generally addressed in this section of the

business plan also. If a franchise, the franchisor may stipulate

in the franchise contract the type of accounting and inventory

systems you may use. If this is the case, he or she should have a

system already intact and you will be required to adopt this

system. Whether you develop the accounting and inventory systems

yourself, have an outside financial advisor develop the systems

or the franchisor provides these systems, you will need to

acquire a thorough understanding of each segment and how it

operates. Your financial advisor can assist you in developing

this section of your business plan.


The following questions should help you determine the amount of

start-up capital you will need to purchase and open a franchise.


     *     How much money do you have?

     *     How much money will you need to purchase the


     *     How much money will you need for start-up?

     *     How much money will you need to stay in business?


Other questions that you will need to consider are:


     *     What type of accounting system will your use? Is it a 

           single entry or dual entry system?

     *     What will your sales goals and profit goals for the

           coming year be? If a franchise, will the franchisor

           set your sales and profit goals? Or, will he or she

           expect you to reach and retain a certain sales level  

           and profit margin?

     *     What financial projections will you need to include

           in your business plan?

     *     What kind of inventory control system will you use?


Your plan should include an explanation of all projections.

Unless you are thoroughly familiar with financial statements, get

help in preparing your cash flow and income statements and your

balance sheet. Your aim is not to become a financial wizard, but

to understand the financial tools well enough to gain their

benefits. Your accountant or financial advisor can help you

accomplish this goal.


Sample balance sheets, income projections (profit and loss

statements) and cash flow statements are included in Appendix 2,

Financial Management. For a detailed explanation of these and

other more complex financial concepts, contact your local SBA

Office. Look under the U.S. Government section of the local

telephone directory.




During this activity you will:


     *     Briefly describe what goes into a business plan.


     *     Identify advantages of developing the marketing,

           management and financial management plans.


     *     List financial projections included in the financial

           management plan.


     *     Sketch an outline for a business plan.










                         THE ENTREPRENEUR'S

                           MARKETING PLAN


This is the marketing plan of____________________________



     A. Target Market - Who are the customers?

          1. We will be selling primarily to (check all that



                                                    Total Percent

                                                     of Business


            a. Private sector         _______              ______

            b. Wholesalers            _______              ______

            c. Retailers              _______              ______

            d. Government             _______              ______

            e. Other                  _______              ______



          2. We will be targeting customers by:


             a. Product line/services.

                We will target specific lines    ________________

             b. Geographic area? Which areas?    ________________

             c. Sales? We will target sales of   ________________

             d. Industry? Our target industry is ________________

             e. Other?                           ________________


          3. How much will our selected market spend on our type

             of product or service this coming year?



     B. Competition

          1. Who are our competitors?


             NAME       ________________________________________

             ADDRESS   _________________________________________


             Years in Business              ___________________

             Market Share                   ___________________

             Price/Strategy                 ___________________


                Features                    ___________________



             NAME     _________________________________________

             ADDRESS  _________________________________________


             Years in Business             ____________________

             Market Share                  ____________________

             Price/Strategy                ____________________


               Features                    ____________________


          2. How competitive is the market?


             High                          ____________________

             Medium                        ____________________

             Low                           ____________________


          3. List below your strengths and weaknesses compared to

             your competition (consider such areas as location,

             size of resources, reputation, services, personnel, 



            Strengths                                  Weaknesses


            1._______________________     1._____________________

            2._______________________     2._____________________

            3._______________________     3._____________________

            4._______________________     4._____________________


     C. Environment


          1. The following are some important economic factors

             that will affect our product or service (such as

             trade area growth, industry health, economic trends,

             taxes, rising energy prices, etc.):





          2. The following are some important legal factors that 

             will affect our market:





          3. The following are some important government factors:





          4. The following are other environmental factors that

             will affect our market, but over which we have no








     A. Description

          1. Describe here what the product/service is and what

             it does:




     B. Comparison

          1. What advantages does our product/service have over

             those of the competition (consider such things as

             unique features, patents, expertise, special

             training, etc.)?





          2. What disadvantages does it have?





     C. Some Considerations

          1. Where will you get your materials and supplies?



          2. List other considerations:






     A. Image


          1. First, what kind of image do we want to have (such

             as cheap but good, or exclusiveness, or customer-

             oriented or highest quality, or convenience, or

             speed, or ...)?



     B. Features

          1. List the features we will emphasize:

              a. __________________________________________

              b. __________________________________________

              c. __________________________________________


     C. Pricing

          1. We will be using the following pricing strategy:

            a. Markup on cost      ____      What % markup? _____

            b. Suggested price     ____

            c. Competitive         ____

            d. Below competition   ____

            e. Premium price       ____

            f. Other               ____


          2. Are our prices in line with our image?

               YES___          NO___

          3. Do our prices cover costs and leave a margin of


               YES___          NO___


     D. Customer Services

          1. List the customer services we provide:

             a. ____________________________________________

             b. ____________________________________________

             c. ____________________________________________

          2. These are our sales/credit terms:

              a. ____________________________________________

              b. ____________________________________________


           3. The competition offers the following services:

      a. ____________________________________________

      b. ____________________________________________

      c. ____________________________________________


     E. Advertising/Promotion

          1. These are the things we wish to say about the






          2. We will use the following advertising/promotion


             1. Television                    ________

             2. Radio                         ________

             3. Direct mail                   ________

             4. Personal contacts             ________

             5. Trade associations            ________

             6. Newspaper                     ________

             7. Magazines                     ________

             8. Yellow Pages                  ________

             9. Billboard                     ________

            10. Other___________              ________


          3. The following are the reasons why we consider the

             media we have chosen to be the most effective:








1. Marketing Steps

         * Classifying Your Customers' Needs

         * Targeting Your Customer(s)

         * Examining Your "Niche"

         * Identifying Your Competitors


         * Assessing and Managing Your Available Resources


              - Financial

              - Human

              - Material

              - Production







                       MARKETING TIPS, TRICKS & TRAPS


2. Marketing Positioning


         * Follower versus Leader

         * Quality versus Price

         * Innovator versus Adaptor

         * Customer versus Product

         * International versus Domestic

         * Private Sector versus Government









                   MARKETING TIPS, TRICKS & TRAPS


3. Sales Strategy

      * Use Customer-Oriented Selling Approach - By Constructing



        * Phase One:        Establish Rapport with Customer - by

                            agreeing to discuss what the customer

                            wants to achieve.


        * Phase Two:        Determine Customer Objective and

                            Situational Factors - by agreeing on

                            what the customer wants to achieve

                            and those factors in the environment

                            that will influence these results.


        * Phase Three:      Recommend a Customer Action Plan - by

                            agreeing that using your product/

                            service will indeed achieve what

                            customer wants.


        * Phase Four:       Obtaining Customer Commitment - By

                            agreeing that the customer will

                            acquire your product/service.


      * Emphasize Customer Advantage


        Must be Read:       When a competitive advantage can not

                            be demonstrated, it will not

                            translate into a benefit.


        Must be Important

        to the Customer:    When the perception of competitive

                            advantage varies between supplier and

                            customer, the customer wins.


        Must be Specific:   When a competitive advantage lacks

                            specificity, it translates into mere

                            puffery and is ignored.


        Must be Promotable: When a competitive advantage is

                            proven, it is essential that your

                            customer know it, lest it not exist

                            at all.









                   MARKETING TIPS, TRICKS & TRAPS


4. Benefits vs. Features


   * The six "O's" of organizing Customer Buying Behavior


          ORIGINS of purchase:          Who buys it?

          OBJECTIVES of purchase:       What do they need/buy?

          OCCASIONS of purchase:        When do they buy it?

          OUTLETS of purchase:          Where do they buy it?

          OBJECTIVES of purchase:       Why do they buy it?

          OPERATIONS of purchase:       How do they buy it?


   * Convert features to benefits using the "...Which Means..."  



   * Sales Maxim:       "Unless the proposition appeals to their

                        INTEREST, unless it satisfies their

                        DESIRES, and unless it shows them a

                        GAIN--then they will not buy!"


   * Quality Customer Leads:

           Level of need                  Ability to pay

           Authority to pay               Accessibility

           Sympathetic attitude           Business history

           One-source buyer               Reputation (price or

                                          quality buyer)












                   THE "...WHICH MEANS..." TRANSITION


FEATURES              "WHICH MEANS"            BENEFITS


Performance                                    Time Saved

Reputation                                     Reduced Cost

Components                                     Prestige

Colors                                         Bigger Savings

Sizes                                          Greater Profits

Exclusive                                      Greater


Uses                                           Uniform Production

Applications                                   Uniform Accuracy

Ruggedness                                     Continuous Output

Delivery                                       Leadership

Service                                        Increased Sales

Price                                          Economy of Use

Design                                         Ease of Use

Availability                                   Reduced Inventory

Installation                                   Low Operating Cost

Promotion                                      Simplicity

Lab Tests                                      Reduced Upkeep

Terms                                          Reduced Waste

Workmanship                                    Long Life


                          BUYING MOTIVES

RATIONAL                                       EMOTIONAL


Economy of Purchase                            Pride of


Economy of Use                                 Pride of Ownership

Efficient Profits                              Desire of Prestige

Increased Profits                              Desire for


Durability                                     Desire to Imitate

Accurate Performance                           Desire for Variety

Labor-Saving                                   Safety

Time-Saving                                    Fear

Simple Construction                            Desire to Create

Simple Operation                               Desire for


Ease of Repair                                 Convenience

Ease of Installation                           Desire to Be


Space-Saving                                   Curiosity

Increased Production


Complete Servicing

Good Workmanship

Low Maintenance

Thorough Research

Desire to be Unique




                      PRICE / QUALITY MATRIX

                           SALES APPEALS


PRICE/QUALITY   HIGH                  MEDIUM              LOW


HIGH        "Rolls Royce"        "We Try Harder"       "Best Buy"

               Strategy            Strategy             Strategy


MEDIUM     "Out Performs"     "Piece of the Rock" "Smart Shopper"

              Strategy             Strategy            Strategy


LOW       "Feature Packed"    "Keeps on Ticking"      "Bargain

             Strategy              Strategy              Hunter"






                        FINANCIAL MANAGEMENT



1. Income Projection Statement

   - Instructions for Income Projection Statement


2. Balance Sheet

   - Instructions for Balance Sheet


3. Monthly Cash Flow Projection

   - Instructions for Monthly Cash Flow Projection


4. Information Resources





           Industry    J F M A M J J A S O N D  Annual   Annual

              %                                  total     %


Total net sales (revenues)

 Costs of sales

 Gross profit

 Gross profit margin


Controllable expenses


 Payroll expenses




 Office supplies




Total controllable



 Fixed expenses






 Loan payments


 Total fixed expenses


Total expenses


Net profit (loss)

  before taxes




 Net profit (loss) after







The income projections (profit and loss) statement is valuable as

both a planning tool and a key management tool to help control

business operations. It enables the owner/manager to develop a

preview of the amount of income generated each month and for the

business year, based on reasonable predictions of monthly levels

of sales, costs and expenses.


As monthly projections are developed and entered into the income

projections statement, they can serve as definite goals for

controlling the business operation. As actual operating results

become known each month, they should be recorded for comparison

with the monthly projections. A completed income statement allows

the owner/manager to compare actual figures with monthly

projections and to take steps to correct any problems.


Industry Percentage


In the industry percentage column, enter the percentages of total

sales (revenues) that are standard for your industry, which are

derived by dividing


               Costs/expenses items x 100%


                  total net sales


These percentages can be obtained from various sources, such as

trade associations, accountants or banks. The reference librarian

in your nearest public library can refer you to documents that

contain the percentage figures, for example, Robert Morris

Associates' Annual Statement Studies (One Liberty Place,

Philadelphia, PA 19103).


Industry figures serve as a useful bench mark against which to

compare cost and expense estimates that you develop for your

firm. Compare the figures in the industry percentage column to

those in the annual percentage column.


Total Net Sales (Revenues)


Determine the total number of units of products or services you

realistically expect to sell each month in each department at the

prices you expect to get. Use this step to create the projections

to review your pricing practices.


     - What returns, allowances and markdowns can be expected?


     - Exclude any revenue that is not strictly related to the



Cost of Sales


The key to calculating your cost of sales is that you do not

overlook any costs that you have incurred. Calculate cost of

sales of all products and services used to determine total net

sales. Where inventory is involved, do not overlook

transportation costs. Also include any direct labor.


Gross Profit


Subtract the total cost of sales from the total net sales to

obtain gross profit.


Gross Profit Margin


The gross profit is expressed as a percentage of total sales

(revenues). It is calculated by dividing


                     gross profits


                     total net sales


Controllable (also known as Variable) Expenses


     - Salary expenses -- Base pay plus overtime.


     - Payroll expenses -- Include paid vacations, sick leave,

       health insurance, unemployment insurance and social

       security taxes.


     - Outside services -- Include costs of subcontracts,

       overflow work and special or one-time services.


     - Supplies -- Services and items purchased for use in the



     - Repair and maintenance -- Regular maintenance and repair,

       including periodic large expenditures such as painting.


     - Advertising -- Include desired sales volume and classified

       directory advertising expenses.


     - Car delivery and travel -- Include charges if personal car

       is used in business, including parking, tools, buying

       trips, etc.


     - Accounting and legal -- Outside professional services.


Fixed Expenses


     - Rent -- List only real estate used in business.


     - Depreciation -- Amortization of capital assets.


     - Utilities -- Water, heat, light, etc.


     - Insurance -- Fire or liability on property or products.

       Include workers' compensation.


     - Loan repayments -- Interest on outstanding loans.


     - Miscellaneous -- Unspecified; small expenditures without

       separate accounts.



Net Profit (loss)

(before taxes)      - Subtract total expenses from gross profit.


Taxes               - Include inventory and sales tax, excise

                      tax, real estate tax, etc.


Net Profit (loss)

(after taxes)       - Subtract taxes from net profit (before



Annual Total        - For each of the sales and expense items in

                      your income projection statement, add all

                      the monthly figures across the table and

                      put the result in the annual total column.


Annual Percentage   - Calculate the annual percentage by dividing


                            Annual total x 100%


                              total net sales


                    - Compare this figure to the industry

                      percentage in the first column.





                               BALANCE SHEET



                               COMPANY NAME

                    As of ____________________________, 19____




Current assets

  Cash                                          $_______


  Petty cash                                    $_______


  Accounts receivable                           $_______


  Inventory                                     $_______


  Short-term investment                         $_______


  Prepaid expenses                              $_______



Long-term investment                            $_______


Fixed assets

 Land                                           $_______


 Buildings                                      $_______


 Improvements                                   $_______


 Equipment                                      $_______


 Furniture                                      $_______


 Automobile/vehicles                            $_______



Other assets

 1.                                             $_______


 2.                                             $_______


 3.                                             $_______


 4.                                             $_______




     Total assets                                $______








Current Liabilities


  Accounts payable                               $______


  Notes payable                                  $______


  Interest payable                               $______


 Taxes payable

  Federal income tax                             $______

  State income tax                               $______

  Self-employment tax                            $______

  Sales tax (SBE)                                $______

  Property tax                                   $______


 Payroll accrual                                 $______


Long-term liabilities        


 Notes payable                                   $______


 Total liabilities                               $______



Net worth (owner equity)                         $______





   (name's) equity                               $_____

   (name's) equity                               $_____



  Capital stock                                  $_____

  Surplus paid in                                $_____

  Retained earnings                              $_____


   Total net worth                               $_____




 Total liabilities and

  total net worth                                $_____



(Total assets will always equal total liabilities and total net








Figures used to compile the balance sheet are taken from the

previous and current balance sheet as well as the current income

statement.  The income statement is usually attached to the

balance sheet.  The following text covers the essential elements

of the balance sheet.


At the top of the page fill in the legal name of the business,

the type of statement and the day, month and year.





List anything of value that is owned or legally due the business.

Total assets include all net values.  These are the amounts

derived when you subtract depreciation and amortization from the

original costs of acquiring the assets.


Current Assets


     - Cash -- List cash and resources that can be converted into

       cash within 12 months of the date of the balance sheet (or

       during one established cycle of operation). Include money

       on hand and demand deposits in the bank, e.g., checking

       accounts and regular savings accounts.


     - Petty cash -- If your business has a fund for small

       miscellaneous expenditures, include the total here.


     - Accounts receivable -- The amounts due from customers in

       payment for merchandise or services.


     - Inventory -- Includes raw materials on hand, work in

       progress and all finished goods, either manufactured or

       purchased for resale.


     - Short-term investments -- Also called temporary

       investments or marketable securities, these include

       interest- or dividend-yielding holdings expected to be

       converted into cash within a year.  List stocks and bonds,

       certificates of deposit and time-deposit savings accounts

       at either their cost or market value, whichever is less.


     - Prepaid expenses -- Goods, benefits or services a business

       buys or rents in advance. Examples are office supplies,

       insurance protection and floor space.


Long-term Investments


Also called long-term assets, these are holdings the business

intends to keep for at least a year and that typically yield

interest or dividends.  Included are stocks, bonds and savings

accounts earmarked for special purposes.


Fixed Assets


Also called plant and equipment.  Includes all resources a

business owns or acquires for use in operations and not intended

for resale.  Fixed assets may be leased.  Depending on the

leasing arrangements, both the value and the liability of the

leased property may need to be listed on the balance sheet.


     - Land -- List original purchase price without allowances

       for market value.


     - Buildings


     - Improvements


     - Equipment


     - Furniture


     - Automobile/vehicles





Current Liabilities


List all debts, monetary obligations and claims payable within 12

months or within one cycle of operation.  Typically they include

the following:


     - Accounts payable -- Amounts owed to suppliers for goods

       and services purchased in connection with business  



     - Notes payable -- The balance of principal due to pay off

       short-term debt for borrowed funds. Also includes the

       current amount due of total balance on notes whose terms

       exceed 12 months.


     - Interest payable -- Any accrued fees due for use of both

       short- and long-term borrowed capital and credit extended

       to the business.


     - Taxes payable -- Amounts estimated by an accountant to

       have been incurred during the accounting period.


     - Payroll accrual -- Salaries and wages currently owed.



Long-term Liabilities



Notes payable -- List notes, contract payments or mortgage

payments due over a period exceeding 12 months or one cycle of

operation. They are listed by outstanding balance less the

current position due.


Net worth


Also called owner's equity, net worth is the claim of the

owner(s) on the assets of the business. In a proprietorship or

partnership, equity is each owner's original investment plus any

earnings after withdrawals.


Total Liabilities and Net Worth


The sum of these two amounts must always match that for total









Name of Business  Owner  Type of Business  Prepared by  Date

             Pre-start-  1     2     3     4     5     6   Total

             up position                              Columns 1-6

Year Month

Est.* Act.* Est.Act. Est.Act. Est.Act. Est.Act. Est.Act.


1. Cash on hand (beginning


2. Cash receipts

   (a) Cash sales

   (b) Collections from credit


   (c) Loan or other cash

       injections (specify)

3. Total cash receipts



4. Total cash available

   (before cash out) (1+3)


5. Cash paid out

   (a) purchases (merchandise)

   (b) Gross wages (excludes withdrawals)

   (c) Payroll expenses (taxes, etc.)

   (d) Outside services

   (e) Supplies (office and


   (f) Repairs and maintenance

   (g) Advertising

   (h) Car, delivery and travel

   (i) Accounting and legal

   (j) Rent

   (k) Telephone

   (l) Utilities

   (m) Insurance

   (n) Taxes (real estate, etc.)

   (o) Interest

   (p) Other expenses (specify




   (q) Miscellaneous



   (r) Subtotal


   (s) Loan principal payment

   (t) Capital purchases


   (u) Other start-up costs

   (v) Reserve and/or escrow


   (w) Owner's withdrawal


6. Total cash paid out (5a

    through 5w)


7. Cash position (end of

   month) (4 minus 6)


Essential operating data     

(non-cash flow information)

   A. Sales volume (dollars)

   B. Accounts receivable

      (end on month)

   C. Bad debt (end of


   D. Inventory on hand (end

      of month)

   E. Accounts payable (end

      of month)







1. Cash on hand (beginning of month) -- Cash on hand same as (7),

      Cash position, pervious month


2. Cash receipts-

   (a) Cash sales-- All cash sales. Omit credit sales unless cash

       is actually received

   (b) Gross wages (including withdrawals)-- Amount to be  

       expected from all accounts.

   (c) Loan or other cash injection-- Indicate here all cash

       injections not shown in 2(a) or 2(b) above.

3. Total cash receipts (2a+2b+2c=3)

4. Total cash available (before cash out)(1+3)


5. Cash paid out -

   (a) Purchases (merchandise)--Merchandise for resale or for use

       in product (paid for in current month).

   (b) Gross wages (including withdrawals)--Base pay plus

       overtime (if any)

   (c) Payroll expenses (taxes, etc.)-- Include paid vacations,

       paid sick leave, health insurance, unemployment insurance,

       (this might be 10 to 45% of 5(b))

   (d) Outside services--This could include outside labor and/or

       material for specialized or overflow work, including


   (e) Supplies (office and operating)--Items purchased for use

       in the business (not for resale)

   (f) Repairs and maintenance-- Include periodic large

       expenditures such as painting or decorating

   (g) Advertising--This amount should be adequate to maintain

       sales volume

   (h) Car, delivery and travel--If personal car is used, charge

       in this column, include parking

   (i) Accounting and legal--Outside services, including, for

       example, bookkeeping

   (j) Rent-- Real estate only (See 5(p) for other rentals)

   (k) Telephone

   (l) Utilities--Water, heat, light and/or power

   (m) Insurance-- Coverage on business property and products

       (fire, liability); also worker's compensation, fidelity,

       etc. Exclude executive life (include in 5(w))

   (n) Taxes (real estate, etc.)-- Plus inventory tax, sales tax,

       excise tax, if applicable

   (o) Interest--Remember to add interest on loan as it is

       injected (See 2(c) above)

   (p) Other expenses (specify each)



       Unexpected expenditures may be included here as a safety


       Equipment expenses during the month should be included

       here (non-capital equipment)__________________________

       When equipment is rented or leased, record payments here

   (q) Miscellaneous (unspecified)--Small expenditures for which

       separate accounts would be practical

   (r) Subtotal--This subtotal indicates cash out for operating


   (s) Loan principal payment--Include payment on all loans,

       including vehicle and equipment purchases on time payment

   (t) Capital purchases (specify)--Nonexpensed (depreciable)

       expenditures such as equipment, building purchases on time


   (u) Other start-up costs--Expenses incurred prior to first

       month projection and paid for after start-up

   (v) Reserve and/or escrow (specify)-- Example: insurance, tax

       or equipment escrow to reduce impact of large periodic


   (w) Owner's withdrawals-- Should include payment for such

       things as owner's income tax, social security, health

       insurance, executive life insurance premiums, etc.


6. Total cash paid out (5a through 5w)


7. Cash position (end on month) (4 minus 6)-- Enter this amount

   in (1) Cash on hand following month--


Essential operating data (non-cash flow information)--This is

basic information necessary for proper planning and for proper

cash flow projection. Also with this data, the cash flow can be

evolved and shown in the above form.


   A. Sales volume (dollars)--This is a very important figure and

      should be estimated carefully, taking into account size of

      facility and employee output as well as realistic

      anticipated sales (actual sales, not orders received).

   B. Accounts receivable (end of month)-- Previous unpaid credit

      sales plus current month's credit sales, less amounts

      received current month (deduct "C" below)

   C. Bad debt (end on month)-- Bad debts should be subtracted

      from (B) in the month anticipated

   D. Inventory on hand (end on month)-- Last month's inventory

      plus merchandise received and/or manufactured current month

      minus amount sold current month

   E. Accounts payable (end of month) Previous month's payable

      plus current month's payable minus amount paid during


   F. Depreciation--Established by your accountant, or value of

      all your equipment divided by useful life (in months) as

      allowed by Internal Revenue Service