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