Saint Francis University

Effective Business Planning Procedures

Funding support and resources are provided by the Commonwealth of Pennsylvania through the Department of Community and Economic Development; through a cooperative agreement with the U.S. Small Business Administration, and through support from Saint Francis University. All services are extended to the public on a non-discriminatory basis. Special arrangements for persons with disabilities can be made by calling (814) 472-3200. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA.

FOREWORD

This booklet is intended to be used as a proposed format for a business plan.
It is divided into three sections.

1. The first section (pages 3-7) is an outline which contains sample questions used to examine prospective ventures.
2. Section two (pages 9-26) contains an example of a business plan used by the Little Rascal Day Care to obtain financing.
3. The third section (pages 27-28) consists of helpful hints once the business plan is complete.

TABLE OF CONTENTS

Introduction 

Suggested Outline of Business Plan Requiring Financing 

Sample Business Plan 

Recommendations and Tips

INTRODUCTION

THE BUSINESS PLAN

Your plan is a reflection of you and your ability to organize, to think, to manage and to communicate. In the eyes of a banker or venture capitalist - one who may invest his money in your new enterprise - it demonstrates on paper your potential ability to compete in the business arena.

Developing and maintaining a successful business requires planning. In some cases it may only be a concept in the entrepreneur's mind. A written business plan can be an invaluable tool that the entrepreneur can use to identify and exploit opportunities. It is also helpful in anticipating problems and developing strategies for avoiding or minimizing those problems.

The form and content of a business plan will vary with each business and with the intended use. The main purpose of the business plan is not to impress outsiders, but to force the business owner to think through certain aspects of starting a business. Think through them so completely that they can commit them to paper.

As you consider the time and energy that must go into the process of planning, remember the old adage: "businesses don't plan to fail, they just fail to plan."

Your business plan will provide the basis for your finance proposal which is the document submitted to the financial community in order to get your finances to start or expand your business.

Good intentions are only a part of the formula; the rest is knowing what to plan, when to plan, and how to plan. In this section, you will learn the basics of good planning. If you have the personal discipline and this lesson adds the information, you will be prepared to PLAN FOR SUCCESS.

It is important to realize that the plan, while used to obtain the financing, helps insure success. Use and review the following reasoning and rules throughout the planning process.

WHY PLAN - FIVE MAJOR REASONS TO DO A BUSINESS PLAN

1. Forces you to look at your business in its entirety.
   
2. Plan becomes a tool to manage your business.
   
3. Demonstrates to others your goals and objectives.
   
4. Provides a basis for your financing proposal.
   
5. Creates a yardstick by which you may measure and evaluate changes.

IMPORTANT RULES INCLUDE

• Write the plan yourself.
  
• Use the plan you have written.

SUGGESTED OUTLINE OF BUSINESS PLAN REQUIRING FINANCING

The following outline corresponds to the actual business plan found below.

COVER SHEET
Name of Company
Name of Principles
Address and Phone Number of Business

STATEMENT OF PURPOSE 

1. Who is borrowing the money?
   
2. Structure of business (retail, service, wholesale, etc)?
   
3. How much is needed?
   
4. What for (Be Very Specific)?
   Lender likes to see, for example, cash recovery, working capital, or going profits - in plain words, a bank wants to know how you are going to repay your loan.
   
5. What are the terms and conditions?
   
6. What are the benefits to both (Co. & Lender-Very Important)?
   

TABLE OF CONTENTS 

1. Cover Sheet
   
2. Statement of Purpose
   
3. Contents
   
4. The Business Plan
   
5. Financial Data
   
6. Support Documents
   

THE BUSINESS PLAN

DESCRIPTION OF BUSINESS

1. Is it manufacturing, service, merchandising, retail?
   
2. Status of business: (start-up, expansion, purchase of existing business).
   
3. Business form: (sole proprietorship, partnership, corporation).
   
4. Why is business profitable or why will it be profitable?
   
5. When did business start or when will it start?
   
6. Operating hours of business.
   

THE MARKET 

1. What type of business are you in? What are the products or services of your business?
   
2. What geographic area will the business serve? Who are your customers or potential customers and where are they coming from?
   
3. What are you going to charge for your products or services? Is your price competitive? Why will customers pay this price?
   
4. Who are your competitors (list three to five major competitors)? Where are they located relative to your business? What do they sell and who do they attract? REMEMBER, EVERY BUSINESS HAS COMPETITORS!
   
5. What advantages do your competitors have on you and what advantages do you have on them? Why should potential customers patronize your business as opposed to theirs? What makes your products or business better?
   
6. How will your business capture a share of the market? What type of advertising will you do? How are you going to promote your business (price, service, quality, etc.)?
   
7. How much business can you realistically expect to do?
   

LOCATION OF BUSINESS 

1. Where will the business be located? (Street address).
   
2. Describe the physical features of the facility. For example, one story, brick building with 3,000 square feet of space. Explain how the space is utilized.
   
3. Own, rent or lease (if lease-supply copy of lease). Describe terms of rent or lease agreement.
   
4. What renovations, if any, are needed at the facility?
   
5. Are there any local regulations such as zoning that may affect the operation of your business?
   
6. What other types of businesses are in this area?
   
7. Why is this a good location?
   
8. What is the growth potential of the facility and area?
   

MANAGEMENT 

1. Personal history of principals.
   
2. Education, related work experience (Why do you think you are capable of operating this business)?
   
3. Duties and responsibilities (Who does what, who reports to whom)?
   
4. What are your weaknesses and how do you plan to correct them?
   
5. Why are you going to be successful?
   

RESOURCES 

List anyone who is assisting you in starting or operating your business. Who is your accountant, lawyer, insurance agent, bank, business and professional organizations, etc?

PERSONNEL 

1. Will you need any full or part-time employees? If so, how many? If not, explain why you will have none.
   
2. Future need for employees.
   
3. What skills are required? Will skilled people be available? Will you have to train people?
   
4. What will they be paid? How much per hour? Will you be offering any fringe benefits?
   

OPERATIONAL PLAN 

1. What are the requirements for your physical location?
   
2. Evaluate your existing and new inventory, machinery, fixtures and equipment. Are they adequate?
   
3. Do you have or need a floor plan? What will be the cost to implement this plan?
   
4. Are there any specific requirements in regard to employees and/or professional assistance?
   

APPLICATION AND EXPECTED EFFECTS OF LOAN 

1. How will proceeds of the loan be spent? (be specific)
   
2. What specific assets are being purchased? Examples:
   
   • Real Estate purchase (attach legal description, appraisal, sales agreement, etc.).
     
   • Renovations (attach quotes from contractors).
     
   • Equipment (attach DETAILED itemized list including brand name, serial number, model number, price, suppliers name, etc.).
     
   • Working Capital (what is it to be spent on)?
     
   • Inventory
     

FINANCIAL PLAN 

1. What is your total estimated business income and expenses for the first year?
   
2. What will be your monthly cash flow during the first year?
   
3. What will be the break-even point?
   
4. What will be your projected assets, liabilities, and net work on the day before you expect to open?
   
5. What will the capital value of your equipment be?

SUPPORTING DOCUMENTS 

1. Resume
   
2. Personal Financial Statement
   
3. Quotes or estimates
   
4. Census/demographic data
   
5. Letters of intent from current or prospective customers
   
6. Copies of tax returns for past 3 years (personal/business)
   
7. Lease or buy/sell agreements
   
8. Legal documents relevant to the business

SAMPLE FINANCING PROPOSAL
FOR
LITTLE RASCAL DAY CARE

Della Mason
Paul Mason
468 Moonlight Lane
Harwell, PA 16600
(814) 555-5555

STATEMENT OF PURPOSE 

Little Rascal Day Care (principal Della Mason and husband Paul) is seeking a loan of $75,000 to purchase land and a building and perform necessary renovations and improvements. In addition, funds will be used to purchase day care supplies, furnishings and provide sufficient working capital. This loan will enable me to successfully expand our current day care service which is a sole proprietorship. With this expansion I will be able to accept additional students without increasing labor costs.

TABLE OF CONTENTS 

DESCRIPTION 

Little Rascal Day Care offers year round care for children ages six weeks through ten years. It has been a successful sole proprietorship for five years. The center is staffed Monday through Friday from 7:00 a.m. until 5:30 p.m.

The educational programs are staffed by trained and experienced teachers and include nursery school for toddlers and pre-school for children ages three and one half to five years. Before and after school care is offered for kindergarten and school age children.

Nutritious home cooked meals and snacks are served to all children at no additional cost to the parents. A great summer program of swimming and playing outdoors in a beautiful, spacious, fenced-in well equipped play yard is part of the program. Indoor crafts and games are planned daily. Outside activities are planned according to the weather. Activities include: picnics, stories under the shade of old trees, roller skating in the driveway, sandbox fun, gardening, playing in a cute Gingerbread Playhouse, neighborhood walks and ball games. In the fall there are hayrides and wiener roasts. In the winter children play in the snow and pull each other on sleds. In the spring children pick up litter as part of an annual Spring Clean-up Campaign. There are field trips year round, holiday celebrations and many other special events.

MARKET 

The majority of my clientele are families from upper income levels. I also have families who use my services because they receive funding from a government sponsored Education and Training Program. I am enrolled in a vendor system where I receive direct payment from the government for these students.

My central location allows me to enroll children from Trag, Hamilton, Clifford, Riverdale, Pineville and Harwell. However from September to June, the school age children must be from the Hamilton School District. My new location will allow me to expand the acceptance of school age children from the Harwell Area School District. Bus transportation will be available from Harwell buses and van transportation will be available to the Hamilton School District.

Unlike many other day care centers, I provide on-going care for children from infancy through school age. In addition, I will be able to provide care for school age children from two school districts. These factors will increase my enrollment.

I have transformed my home into a school and my yard into a gigantic playground. A large percentage of my profit has been reinvested in the business in the form of teaching materials, day care supplies, equipment and furniture. My husband has supplied the day care with an abundance of wooden playground equipment, picnic tables, chairs, etc.

I currently have a dual license which allows me to accommodate 18 children plus relatives. The new facility will accommodate 24 children plus relatives. I will be able to do this without adding new staff. This will yield more income to meet the additional expenses of the new location.

There are three day care centers in this area that I consider my major competitors. They include The Kids Learning Center, Children's World and Three Stooges Day Care Center. All are located within seven miles of my new location. Additional competition comes from a number of day care group homes and family day care centers. My day care is comparable to these centers in quality, price and location.

The demand for day care is growing in this area and is projected to continue for the next eight years. New home construction has increased by 10% with projections to continue for the next 3 years. (Figures and projections were taken from the new home building permits issued in the Hamilton School District and the Construction Guild International.) Nearly 85% of the families in this area are two income families with this figure projected to 89% by 2002. The families in the school district have 1 to 3 children from infancy to fifth grade. Together, these facts mean that my day care services will continue to satisfy the growing needs of the families in this school district.

My goal is to operate a day care center for infants, toddlers and school children through age 10 with a maximum enrollment of 24 students. I will attract additional students to the new center by: 1) talking with local real estate agents, 2) giving discounts for two or more children from the same family, 3) distributing flyers in local grocery stores and in the businesses of parents of my current students and 4) advertising in local newspapers that I will accept infants.

My day care services are year round because there is also a need for summer time care for families with school age children. This enables me to keep student enrollment up even in the summer. The students enjoy coming back each summer because they have formed great relationships with myself, the teachers and other children. Another advantage to accepting school age children is that families can have all of their children in one facility.

MANAGEMENT SUMMARY 

I have always wanted to be a teacher and work with young children. I volunteered regularly as a teacher at my church throughout my high school years. I graduated from Jefferson College with a B.S. degree in Elementary Education. Since that time I have earned eleven graduate credits. I have twenty-five years of experience working as a full or part-time teacher at public and private schools in this area.

I opened my own day care in my home with one student six years ago. I currently have eighteen students, three full-time teachers and a part-time aide. I am the director of the center.

My hobby is visiting other day care or educational centers for children and networking with early childhood professionals such as day care directors and consultants. I regularly attend regional and state conferences presented by organizations to which I belong. They include the Pennsylvania Association of Child Care Agencies, the Pennsylvania Association for the Education of Young Children and the National Association for the Education of Young Children. I frequently send my employees to workshops presented by these organizations. I also read and listen to management books and tapes. My ultimate goal is to own and manage a day care facility.

RESOURCES 

Little Rascal Day Care enlists the services of various professionals to assist in the operation of the business. The accounting needs are handled by Norm Pierce, C.P.A. and my attorney is Frank Chambers. The group health insurance was prepared by Walter Racine and the liability insurance is handled by Fred Klinger. For the latest information and trends in day care I can contact Pennsylvania Child Care Consultants or my professional network of owners and managers of day care centers throughout the state of Pennsylvania. My contact person for meal reimbursement and other day care concerns is Max Clavin of the Pennsylvania Educational Management Association. I also receive business counseling from the Saint Francis College Small Business Development Center.

LOCATION 

Little Rascal Day Care is currently operating out of my home at 468 Moonlight Lane. The proposed new facility is commercially zoned on a 2.6 acre secluded tract. It is almost entirely surrounded by woods and other natural barriers. There is a large enclosed yard and a wooded section at the back of the property. The building is a two story brick home located at the end of Monsoon Lane at the south end of Riverdale Drive and opposite Riverdale Manor.

PERSONNEL 

Little Rascal Day Care currently employs three full-time teachers. The teachers earn $6.00 per hour and work 40 hours per week. A part-time aide will begin work in January and will be paid $5.25 per hour and works between 15 and 30 hours per week. I anticipate hourly wage increases when I conduct six month staff evaluations. The general maintenance is done by my husband and son. The move to 772 Monsoon Lane will give me additional space which will enable me to accommodate six additional full-time students. I will not need any additional employees until my enrollment goes beyond 24 students. I have future plans to construct a building behind the house so I will be able to accommodate additional children. I may also use my present home for any overflow students. When enrollment increases I will be prepared because there are many qualified people interested in day care work. The beginning salary ranges are between $5.25 and $6.00 per hour. Fringe benefits include lunch, snacks and $100 per year direct reimbursement dental benefits.

OPERATIONAL PLAN 

The new location has two baths and kitchens and an abundance of storage cupboards, closets and storage shelves. These features are important for a day care operation. The kitchens will make preparing meals more convenient since breakfast, lunch and a snack are provided. The extra refrigerator can be used to store a daily supply of infant formula. The two kitchen sinks, in addition to the bathroom sinks, will be a convenient source of running water for hand washing at diaper changing time. The major renovations include new carpeting and linoleum throughout the building, the removal of a flue and wood burner, the installation of electric heat in the garage area and the relocation of kitchen cupboards.

APPLICATION AND EFFECT OF LOAN 

The $75,000 will be used as follows:

LITTLE RASCAL DAY CARE CURRENT INCOME STATEMENT
JANUARY - JUNE
INCOME 

OPERATING EXPENSES 

NET INCOME - $8,475
LITTLE RASCAL DAY CARE BALANCE SHEET
JUNE 30
ASSETS 

LIABILITIES 

EXPLANATION TO BALANCE SHEET 

EXPLANATION TO CASH FLOW PROJECTIONS
STANDARD TUITION RATES 

Before/After School Care - $2 per hour or weekly fee.

For projection purposed I am assuming all children will fall in the 18 months to 3 year category and will pay an average of $75 per week until June 30 and $80 per week starting July 1.

I am basing my numbers on my experience in the day care field and on the past performance of the Little Rascal Day Care. These factors, along with additional marketing and the new location, make these figures very attainable.

MEAL REIMBURSEMENT 

WAGES - November and December are based on three full-time teachers @ $6.00 per hour working 40 hours per week. During January and February a part-time aid will be added. He/she will be paid $5.25 per hour and work 15 hours per week. During March, April, May and June the hours for the aid will be increased to 30 hours per week. The months of July, August, September and October will include hiring an additional part-time aid @ $5.25 per hour working an average of 23 hours per week.

PAYROLL TAXES - Based on 20% of wages.

INSURANCE - Includes liability and health coverage. Insurance in handled by the World Wide Insurance Company.

TEACHER BENEFITS - Additional benefits that are not covered through health insurance. These benefits have yet to be specifically determined.

FOOD - Based on purchases necessary to serve breakfast, lunch and snacks.

INTEREST AND PRINCIPAL - Based on a loan of $75,000 at 10% for 10 years.

OWNER'S DRAW - Based on taking $500 per month for personal use. This amount may vary depending on business. Mr. Mason earns enough money to pay all of the family living expenses.

RECOMMENDATIONS AND TIPS 

1. Complete your business plan and financial statements, then:
   
   • Contact loan officer, drop package off, and give him/her time to review it.
     
   • Arrange a meeting.
     
2. Aim the package at what the lender wants to know because lending decisions are based on understanding a company's value.
   
3. Remember - the banker's position is two-fold:
   
   • Loan money.
     
   • Make only loans that will be repaid.

   Therefore - accurate, detailed, documented/supported information is needed.)

4. Do not ask for more than is needed on the assumption that it will get cut down.
   
5. Do not ask for less than is needed on the assumption that it will be easier to secure. When you are unable to pay your debt later, it will be more difficult to secure more financing.
   
6. When you see your banker, you should be able to answer five questions within the first two minutes.
   
   • How much money do you want?
     
   • How long do you want it for?
     
   • What are you going to do with the money?
     
   • How are you going to repay the loan?
     
   • Alternate source of repayment if plan A goes wrong.
     
7. Review the Bankers five C's of Credit:
   
   • Character - You.
     
   • Capital - Your net worth.
     
   • Capacity - Earnings.
     
   • Conditions - What's going on?
     
   • Collateral - What are you pledging?
     
8. Pick your bank carefully. Do comparison shopping among banks - interest rates and points vary considerably.
   
9. Be prepared to personally guarantee your loan by placing personal assets as collateral (i.e. your home, stocks, etc.). Your banker will take a risk only if you are willing to take a risk.

FINAL ANALYSIS 

1. Do your homework, and get assistance where needed.
   
2. Make a professional presentation.
   
3. Offer candid analysis - tell the bad as well as the good, your banker is more influenced by what he/she dislikes than what he/she likes. Explain how you plan to address your weaknesses.
   
4. Understand your banker's position.
   

Create Confidence 

Remember, you are selling yourself and your business.