Chapter 6: Writing A Business Plan
contribution margin
the amount per unit of sale that's left over and is available to "contribute" to covering the business's fixed costs and producing a profit
product prototype
the first physical manifestation of a new product, often in a crude or preliminary form
pro forma (projected) financial statements
the heart of the financial section of a business plan
costs of goods sold
the materials and direct labor needed to produce the revenue driver
summary business plan
10 to 15 pages and works best for companies that are very early in their development and are not prepared to write a full plan; the authors may be asking for funding to conduct the analysis needed to write a full plan
virtual prototype
a computer-generated 3D image of a product or service idea
competitor analysis
a detailed analysis of a firm's competitors, should be included
sources and uses of funds statement
a document that lays out specifically how much money a firm needs (if the intention of the business plan is to raise money), where the money will come from, and how the money will be used
organizational chart
a graphic representation of how authority and responsibility are distributed within the company
milestone
a noteworthy or significant event
board of advisors
a panel of experts asked by a firm's management to provide counsel and advice on an ongoing basis
board of directors
a panel of individuals elected by a corporation's shareholders to oversee the management of the firm
tagline
a phrase that a business plans to use to reinforce its position in the marketplace
executive summary
a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture's distinctive nature
business plan
a written narrative, typically 25 to 35 pages long, that describes what a new business intends to accomplish and how it intends to accomplish it
operating leverage
an analysis of its fixed versus variable costs
assumptions sheet
an explanation of the most critical assumptions on which the financial statements are based
market analysis
breaks the industry into segments and zeroes in on the specific segment (or target market) to which the firm will try to appeal
fixed costs
costs a company incurs whether it sells something or not
mission statement
defines why a company exists and what it aspires to become
position
how a company is situated relative to its rivals
ratio analysis
how business plan writers interpret or make sense of a firm's historical or pro forma financial statements
operational business plan
intended primarily for an internal audience; is a blueprint for a company's operations; commonly running between 40 and 100 pages in length, these plans can obviously feature a great amount of detail that provides guidance to operational managers
marketing strategy
its overall approach for marketing its products and services
market segmentation
the process of dividing the market into distinct segments; can be segmented in many ways, such as by geography (city, state, country), demographic variables (age, gender, income), psycho-graphic variables (personality, lifestyle, values), and so forth
full business plan
typically 25 to 35 pages long; this type of plan spells out a company's operations and plans in much more detail than a summary business plan, and it is the format that is usually used to prepare a business plan for an investor
variable costs
vary by sales