This section of the plan describes the nature of your product or service, its key features and benefits, plus its competitive advantage.
What is your product or service?
Describe its features in a “brochure” format that is designed for your intended audience (consumers, other businesses, government, others).
What are the key features of your product or service?
Give a list of the features, for example: specialized materials, quality workmanship, convenience, delivered, customized, educational, etc. What are the benefits to your customers in purchasing this good or service over another’s?
Describe the price structure
in your industry including: mark-ups, commissions, discounts and refund policies. Where does your product / service fit in the price matrix? Determine your prices and volume of sales. Document the assumptions that you have made to derive these figures. They will make up the “revenue” side of your cash flow forecasts. It is required by some financial lenders that you come up with a best and worst case scenario matrix. Some even recommend a third scenario: middle-of-the-road. Demonstrating that your business is viable even in a worst case scenario goes a long way in communicating the strength of your business idea.
Describe the distribution methods (wholesalers, agents, etc.)
that are typically used in your industry. Note the terms for volume discounts, incentives, factoring for cost increases / decreases, and include in your cash flow forecasts.
Describe the customer service policy
For example: guarantees, layaways, warranties, return policies, etc.
Does your product or service require you to rent / lease / own commercial space, property, or licenses?
What are the advantages / disadvantages of the space available to you? What is your plan for projected business growth, and at what stage in your business plan do you need to take this into account?
What are the product / service risks in your business or industry?
Can you obtain liability insurance to protect your business from these risks? Is this required by your industry associations? Can you join an industry association to become an accredited business to reduce these costs, join group insurance policies, learn best practices, etc.?
Does your product or service competitive advantage include joint venturing, partnering businesses, brand name suppliers, etc.?
What kind of support can you expect from this?
Create and complete the sales forecast for your product or service like the one below.
Sales assumptions must be supported by research in order to be credible. Past history of the business is one way to arrive at the numbers, as are trends in the industry and consumer spending habits, and competitor figures.
Make a list of sales assumptions and research to support sales assumptions like the table below:
Calculating Sales and Cash Flow Projections from Sales (example):
* In this exercise 50% collected in current month of sales and 25% collected in each of the following two months after the sales are generated. If you provide credit terms to your customers or take deposits / balance of payment on a different time scale, you will need to adjust your sales and cash flow projections.
Cash flow is the life blood of a business. It is important to reflect on how customer terms, late payments on invoices, and possible non-payment will impact your business management, commitments to financers, and payroll. You can see from this example that your cash collection could potentially be almost 10% behind your sales figures on a monthly basis. Commercial lines of credit help to buffer time gaps in client payments, providing stability to your operations.
This sales / cash flow information will be used in creating the financial information for your new business.