Business Plans: Guidelines for Inventors

Business people having meeting in conference room

Whether you're planning to open a startup or a lemonade stand, anyone who starts their own business should be able to provide a detailed description of their business plan. You can begin by asking yourself, "What business am I in?" Your answer should include details about your products and market as well as a thorough description of what makes your business unique.

The Cover Sheet

The cover sheet goes before the description and is presented as the first page of your business plan. It includes the name, address and telephone number of the business as well as the names of all principal people involved in the business. You cover letter might include a brief statement of purpose and should also summarize ( table of contents) what is included in your business plan.

To describe a business in a well-written business plan there are three main areas you need to cover. These three components are describing your business, pitching your product, and establishing a location for your business.

Describing Your Business

The description of your business should clearly identify goals and objectives. It should also clarify why  you want to be in business.

When describing your business, you should explain:

  • Legalities such as whether the business is a proprietorship, partnership or corporation.
  • The licenses or permits you will need.
  • Business type, whether it's merchandising, manufacturing or service.
  • What your product is.
  • Is it a new independent business, a takeover or an expansion?
  • Why your business will be profitable.
  • What are the growth opportunities.
  • When your business will be open as it pertains to which days of the week and business hours.
  • What you have learned about your kind of business from outside sources such as trade suppliers, bankers as well as other inventors, manufacturers and publications. 

Also describe the unique aspects of your product and how it will appeal to consumers. Emphasize any special features that you feel will attract customers and explain how and why these specific features are appealing.

Pitching Your Product

Make sure to describe the benefits of your product from the perspective of your target customer. Successful business owners know or at least have an idea of what their customers want or expect from their product. Establishing this beforehand is essential in building customer satisfaction and loyalty. It's also necessary if you hope to beat the competition.

Be sure to describe in detail:

  • What you are selling.
  • How your product will benefit the customer.
  • If you are offering more than one product, describe which products are in demand. 
  • If there will be a steady flow of cash.
  • What is different about the product your business is offering.

Finding a Location

The location of your business can play a crucial role in whether it succeeds or fails. Your location should be built close to your customers in a way that is accessible and provides a sense of security.

Here are some questions to consider when deciding on an ideal location:

  • What are your location needs?
  • What kind of space will you need and are there any online requirements?
  • Why is the desirable area? Is the building desirable?
  • Is it easily accessible? Is public transportation available? Is the street lighting adequate?
  • Are market shifts or demographic shifts occurring?

The Management Plan

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.

You will discover that employees and staff will play an important role in the total operation of your business. It's important 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. It is important 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 competitiveness.

Your management plan should be able to answer the following questions:

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

Financial Management Plan for Your Business

Sound financial management is one of the best ways for your business to remain profitable and solvent. Each year thousands of potentially successful businesses fail because of poor financial management. As the business owner, you need to learn how to 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 onetime 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
  • equipment
  • licenses/permits
  • 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, break-even 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. Whether you develop the accounting and inventory systems yourself, have an outside financial advisor develop the 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.

Other questions that you will need to consider are: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. An accountant or financial advisor can help you accomplish this goal.

  • How much money do you have?
  • How much money will you need for start-up?
  • How much money will you need to stay in business?
  • 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?
  • What financial projections will you need to include in your business plan?
  • What kind of inventory control system will you use?