Training Module - 2


By the end of this workshop, you should be able to:

* Understand the role of the business plan.

* List several reasons for developing a business plan.

* Identify sources where you can get help in developing a

business plan.

* Identify the type of information to include in the business


* Prepare an outline for a business plan.


Below is an outline for a business plan. Use this model as a

guide when developing the business plan for your business.

Elements of a Business Plan

1. Cover sheet

2. Statement of purpose

3. Table of contents

I. The Business

A. Description of business

B. Marketing

C. Competition

D. Operating procedures

E. Personnel

F. Business insurance

G. Financial data

II. Financial Data

A. Loan applications

B. Capital equipment and supply list

C. Balance sheet

D. Breakeven analysis

E. Pro-forma income projections (profit & loss statements)

- Three-year summary

- Detail by month, first year

- Detail by quarters, second and third years

- Assumptions upon which projections were based

F. Pro-forma cash flow

- Follow guidelines for letter E.

III. Supporting Documents

- Tax returns of principals for last three years

- Personal financial statement (all banks have these


- In the case of a franchised business, a copy of

franchise contract and all supporting documents

provided by the franchisor

- Copy of proposed lease or purchase agreement for

building space

- Copy of licenses and other legal documents

- Copy of resumes of all principals

- Copies of letters of intent from suppliers, etc.


What goes in a business plan? This is an excellent question. And,

it is one that many new and potential small business owners

should ask, but oftentimes don't ask. The body of the business

plan can be divided into four distinct sections: 1) the

description of the business, 2) the marketing plan, 3) the

financial management plan and 4) the management plan. Addenda to

the business plan should include the executive summary,

supporting documents and financial projections.


In this section, provide a detailed description of your business.

An excellent question to ask yourself is: "What business am I

in?" In answering this question include your products, market and

services as well as a thorough description of what makes your

business unique. Remember, however, that as you develop your

business plan, you may have to modify or revise your initial


The business description section is divided into three primary

sections. Section 1 actually describes your business, Section 2

the product or service you will be offering and Section 3 the

location of your business, and why this location is desirable (if

you have a franchise, some franchisors assist in site selection).

1. Business Description

When describing your business, generally you should explain:

1. Legalities - business form: proprietorship,

partnership, corporation. The licenses or permits

you will need.

2. Business type: merchandizing, manufacturing or


3. What your product or service is.

4. Is it a new independent business, a takeover, an

expansion, a franchise?

5. Why your business will be profitable. What are the

growth opportunities? Will franchising impact on

growth opportunities?

6. When your business will be open (days, hours)?

7. What you have learned about your kind of business

from outside sources (trade suppliers, bankers, other

franchise owners, franchisor, publications).

A cover sheet goes before the description. It includes the name,

address and telephone number of the business and the names of all

principals. In the description of your business, describe the

unique aspects and how or why they will appeal to consumers.

Emphasize any special features that you feel will appeal to

customers and explain how and why these features are appealing.

The description of your business should clearly identify goals

and objectives and it should clarify why you are, or why you want

to be, in business.

THE BUSINESS PLAN - 2. Product/Service

Try to describe the benefits of your goods and services from your

customers' perspective. Successful business owners know or at

least have an idea of what their customers want or expect from

them. This type of anticipation can be helpful in building

customer satisfaction and loyalty. And, it certainly is a good

strategy for beating the competition or retaining your

competitiveness. Describe:

1. What you are selling.

2. How your product or service will benefit the


3. Which products/services are in demand; if there will

be a steady flow of cash.

4. What is different about the product or service your

business is offering.

THE BUSINESS PLAN - 3. The Location

The location of your business can play a decisive role in its

success or failure. Your location should be built around your

customers, it should be accessible and it should provide a sense

of security. Consider these questions when addressing this

section of your business plan:

1. What are your location needs?

2. What kind of space will you need?

3. Why is the area desirable? the building desirable?

4. Is it easily accessible? Is public transportation

available? Is street lighting adequate?

5. Are market shifts or demographic shifts occurring?

It may be a good idea to make a checklist of questions you

identify when developing your business plan. Categorize your

questions and, as you answer each question, remove it from your


THE BUSINESS PLAN - The Marketing Plan

Marketing plays a vital role in successful business ventures. How

well you market you business, along with a few other

considerations, will ultimately determine your degree of success

or failure. The key element of a successful marketing plan is to

know your customers -- their likes, dislikes, expectations. By

identifying these factors, you can develop a marketing strategy

that will allow you to arouse and fulfill their needs.

Identify your customers by their age, sex, income/educational

level and residence. At first, target only those customers who

are more likely to purchase your product or service. As your

customer base expands, you may need to consider modifying the

marketing plan to include other customers.

Develop a marketing plan for your business by answering these

questions. (Potential franchise owners will have to use the

marketing strategy the franchisor has developed.) Your marketing

plan should be included in your business plan and contain answers

to the questions outlined below.

1. Who are your customers? Define your target market(s).

2. Are your markets growing? steady? declining?

3. Is your market share growing? steady? declining?

4. If a franchise, how is your market segmented?

5. Are your markets large enough to expand?

6. How will you attract, hold, increase your market

share? If a franchise, will the franchisor provide

assistance in this area? Based on the franchisor's

strategy? how will you promote your sales?

7. What pricing strategy have you devised?

Appendix I contains a sample Marketing Plan and Marketing Tips,

Tricks and Traps, a condensed guide on how to market your product

or service. Study these documents carefully when developing the

marketing portion of your business plan.

THE BUSINESS PLAN - 1. Competition

Competition is a way of life. We compete for jobs, promotions,

scholarships to institutes of higher learning, in sports -- and

in almost every aspect of your lives. Nations compete for the

consumer in the global marketplace as do individual business

owners. Advances in technology can send the profit margins of a

successful business into a tailspin causing them to plummet

overnight or within a few hours. When considering these and other

factors, we can conclude that business is a highly competitive,

volatile arena. Because of this volatility and competitiveness,

it is important to know your competitors.

Questions like these can help you:

1. Who are your five nearest direct competitors?

2. Who are your indirect competitors?

3. How are their businesses: steady? increasing?


4. What have you learned from their operations? from

their advertising?

5. What are their strengths and weaknesses?

6. How does their product or service differ from yours?

Start a file on each of your competitors. Keep manila envelopes

of their advertising and promotional materials and their pricing

strategy techniques. Review these files periodically, determining

when and how often they advertise, sponsor promotions and offer

sales. Study the copy used in the advertising and promotional

materials, and their sales strategy. For example, is their copy

short? descriptive? catchy? or how much do they reduce prices for

sales? Using this technique can help you to understand your

competitors better and how they operate their businesses.

THE BUSINESS PLAN - 2. Pricing and Sales

Your pricing strategy is another marketing technique you can use

to improve your overall competitiveness. Get a feel for the

pricing strategy your competitors are using. That way you can

determine if your prices are in line with competitors in your

market area and if they are in line with industry averages.

Some of the pricing strategies are:

* retail cost and pricing

* competitive position

* pricing below competition

* pricing above competition

* price lining

* multiple pricing

* service costs and pricing (for service businesses


- service components

- material costs

- labor costs

- overhead costs

The key to success is to have a well-planned strategy, to

establish your policies and to constantly monitor prices and

operating costs to ensure profits. Even in a franchise where the

franchisor provides operational procedures and materials, it is a

good policy to keep abreast of the changes in the marketplace

because these changes can affect your competitiveness and profit


Appendix 1 contains a sample Price/Quality Matrix, review it for

ideas on pricing strategies for your competitors. Determine which

of the strategies they use, if it is effective and why it is


THE BUSINESS PLAN - 3. Advertising and Public Relations

How you advertise and promote your goods and services may make or

break your business. Having a good product or service and not

advertising and promoting it is like not having a business at

all. Many business owners operate under the mistaken concept that

the business will promote itself, and channel money that should

be used for advertising and promotions to other areas of the

business. Advertising and promotions, however, are the life line

of a business and should be treated as such.

Devise a plan that uses advertising and networking as a means to

promote your business. Develop short, descriptive copy (text

material) that clearly identifies your goods or services, its

location and price. Use catchy phrases to arouse the interest of

your readers, listeners or viewers. In the case of a franchise,

the franchisor will provide advertising and promotional materials

as part of the franchise package, you may need approval to use

any materials that you and your staff develop. Whether or not

this is the case, as a courtesy, allow the franchisor the

opportunity to review, comment on and, if required, approve these

materials before using them. Make sure the advertisements you

create are consistent with the image the franchisor is trying to

project. Remember the more care and attention you devote to your

marketing program, the more successful your business will be.

A more detailed explanation of the marketing plan and how to

develop an effective marketing program is provided in the

Workshop on Marketing. See Training Module 3 - Marketing Your

Business for Success.


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.

Like plants and equipment, people are resources -- they are the

most valuable asset a business has. You will soon discover that

employees and staff will play an important role in the total

operation of your business. Consequently, it's imperative 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.

Additionally, it is imperative 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


Your management plan should answer questions such as:

* 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?

* If a franchise, what type of assistance can you expect

from the franchisor?

* 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? If a franchise, are these issues covered in the

management package the franchisor will provide?

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

If a franchise, the operating procedures, manuals and materials

devised by the franchisor should be included in this section of

the business plan. Study these documents carefully when writing

your business plan, and be sure to incorporate this material. The

franchisor should assist you with managing your franchise. Take

advantage of their expertise and develop a management plan that

will ensure the success for your franchise and satisfy the needs

and expectations of employees, as well as the franchisor.


Sound financial management is one of the best ways for your

business to remain profitable and solvent. How well you manage

the finances of your business is the cornerstone of every

successful business venture. Each year thousands of potentially

successful businesses fail because of poor financial management.

As a business owner, you will need to identify and implement

policies that will lead to and 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 one-time-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

* licenses/permits

* equipment

* 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, breakeven 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. If a franchise, the franchisor may stipulate

in the franchise contract the type of accounting and inventory

systems you may use. If this is the case, he or she should have a

system already intact and you will be required to adopt this

system. Whether you develop the accounting and inventory systems

yourself, have an outside financial advisor develop the systems

or the franchisor provides these 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.

The following questions should help you determine the amount of

start-up capital you will need to purchase and open a franchise.

* How much money do you have?

* How much money will you need to purchase the


* How much money will you need for start-up?

* How much money will you need to stay in business?

Other questions that you will need to consider are:

* 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? If a franchise, will the franchisor

set your sales and profit goals? Or, will he or she

expect you to reach and retain a certain sales level

and profit margin?

* What financial projections will you need to include

in your business plan?

* What kind of inventory control system will you use?

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. Your accountant or financial advisor can help you

accomplish this goal.

Sample balance sheets, income projections (profit and loss

statements) and cash flow statements are included in Appendix 2,

Financial Management. For a detailed explanation of these and

other more complex financial concepts, your local SBA

Office. Look under the U.S. Government section of the local

telephone directory.


During this activity you will:

* Briefly describe what goes into a business plan.

* Identify advantages of developing the marketing,

management and financial management plans.

* List financial projections included in the financial

management plan.

* Sketch an outline for a business plan.









This is the marketing plan of____________________________


A. Target Market - Who are the customers?

1. We will be selling primarily to (check all that


Total Percent

of Business

a. Private sector _______ ______

b. Wholesalers _______ ______

c. Retailers _______ ______

d. Government _______ ______

e. Other _______ ______

a. Product line/services.

We will target specific lines ________________

b. Geographic area? Which areas? ________________

c. Sales? We will target sales of ________________

d. Industry? Our target industry is ________________

e. Other? ________________

3. How much will our selected market spend on our type

of product or service this coming year?


B. Competition

1. Who are our competitors?

NAME ________________________________________

ADDRESS _________________________________________


Years in Business ___________________

Market Share ___________________

Price/Strategy ___________________


Features ___________________

NAME _________________________________________

ADDRESS _________________________________________


Years in Business ____________________

Market Share ____________________

Price/Strategy ____________________


Features ____________________

2. How competitive is the market?

High ____________________

Medium ____________________

Low ____________________

3. List below your strengths and weaknesses compared to

your competition (consider such areas as location,

size of resources, reputation, services, personnel,


Strengths Weaknesses

1._______________________ 1._____________________

2._______________________ 2._____________________

3._______________________ 3._____________________

4._______________________ 4._____________________

C. Environment

1. The following are some important economic factors

that will affect our product or service (such as

trade area growth, industry health, economic trends,

taxes, rising energy prices, etc.):




2. The following are some important legal factors that

will affect our market:




3. The following are some important government factors:




4. The following are other environmental factors that

will affect our market, but over which we have no






A. Description

1. Describe here what the product/service is and what

it does:




B. Comparison

1. What advantages does our product/service have over

those of the competition (consider such things as

unique features, patents, expertise, special

training, etc.)?




2. What disadvantages does it have?




C. Some Considerations

1. Where will you get your materials and supplies?


2. List other considerations:




A. Image

1. First, what kind of image do we want to have (such

as cheap but good, or exclusiveness, or customer-

oriented or highest quality, or convenience, or

speed, or ...)?


B. Features

1. List the features we will emphasize:

a. __________________________________________

b. __________________________________________

c. __________________________________________

C. Pricing

1. We will be using the following pricing strategy:

a. Markup on cost ____ What % markup? _____

b. Suggested price ____

c. Competitive ____

d. Below competition ____

e. Premium price ____

f. Other ____

2. Are our prices in line with our image?

YES___ NO___

3. Do our prices cover costs and leave a margin of


YES___ NO___

D. Customer Services

1. List the customer services we provide:

a. ____________________________________________

b. ____________________________________________

c. ____________________________________________

2. These are our sales/credit terms:

a. ____________________________________________

b. ____________________________________________


3. The competition offers the following services:

a. ____________________________________________

b. ____________________________________________

c. ____________________________________________

E. Advertising/Promotion

1. These are the things we wish to say about the





2. We will use the following advertising/promotion


1. Television ________

2. Radio ________

3. Direct mail ________

4. Personal s ________

5. Trade associations ________

6. Newspaper ________

7. Magazines ________

8. Yellow Pages ________

9. Billboard ________

10. Other___________ ________

3. The following are the reasons why we consider the

media we have chosen to be the most effective:






1. Marketing Steps

* Classifying Your Customers' Needs

* Targeting Your Customer(s)

* Examining Your "Niche"

* Identifying Your Competitors

* Assessing and Managing Your Available Resources

- Financial

- Human

- Material

- Production





2. Marketing Positioning

* Follower versus Leader

* Quality versus Price

* Innovator versus Adaptor

* Customer versus Product

* International versus Domestic

* Private Sector versus Government





3. Sales Strategy

* Use Customer-Oriented Selling Approach - By Constructing


* Phase One: Establish Rapport with Customer - by

agreeing to discuss what the customer

wants to achieve.

* Phase Two: Determine Customer Objective and

Situational Factors - by agreeing on

what the customer wants to achieve

and those factors in the environment

that will influence these results.

* Phase Three: Recommend a Customer Action Plan - by

agreeing that using your product/

service will indeed achieve what

customer wants.

* Phase Four: Obtaining Customer Commitment - By

agreeing that the customer will

acquire your product/service.

* Emphasize Customer Advantage

Must be Read: When a competitive advantage can not

be demonstrated, it will not

translate into a benefit.

Must be Important

to the Customer: When the perception of competitive

advantage varies between supplier and

customer, the customer wins.

Must be Specific: When a competitive advantage lacks

specificity, it translates into mere

puffery and is ignored.

Must be Promotable: When a competitive advantage is

proven, it is essential that your

customer know it, lest it not exist

at all.





4. Benefits vs. Features

* The six "O's" of organizing Customer Buying Behavior

ORIGINS of purchase: Who buys it?

OBJECTIVES of purchase: What do they need/buy?

OCCASIONS of purchase: When do they buy it?

OUTLETS of purchase: Where do they buy it?

OBJECTIVES of purchase: Why do they buy it?

OPERATIONS of purchase: How do they buy it?

* Convert features to benefits using the "...Which Means..."


* Sales Maxim: "Unless the proposition appeals to their

INTEREST, unless it satisfies their

DESIRES, and unless it shows them a

GAIN--then they will not buy!"

* Quality Customer Leads:

Level of need Ability to pay

Authority to pay Accessibility

Sympathetic attitude Business history

One-source buyer Reputation (price or

quality buyer)







Performance Time Saved

Reputation Reduced Cost

Components Prestige

Colors Bigger Savings

Sizes Greater Profits

Exclusive Greater


Uses Uniform Production

Applications Uniform Accuracy

Ruggedness Continuous Output

Delivery Leadership

Service Increased Sales

Price Economy of Use

Design Ease of Use

Availability Reduced Inventory

Installation Low Operating Cost

Promotion Simplicity

Lab Tests Reduced Upkeep

Terms Reduced Waste

Workmanship Long Life



Economy of Purchase Pride of


Economy of Use Pride of Ownership

Efficient Profits Desire of Prestige

Increased Profits Desire for


Durability Desire to Imitate

Accurate Performance Desire for Variety

Labor-Saving Safety

Time-Saving Fear

Simple Construction Desire to Create

Simple Operation Desire for


Ease of Repair Convenience

Ease of Installation Desire to Be


Space-Saving Curiosity

Increased Production


Complete Servicing

Good Workmanship

Low Maintenance

Thorough Research

Desire to be Unique






HIGH "Rolls Royce" "We Try Harder" "Best Buy"

Strategy Strategy Strategy

MEDIUM "Out Performs" "Piece of the Rock" "Smart Shopper"

Strategy Strategy Strategy

LOW "Feature Packed" "Keeps on Ticking" "Bargain

Strategy Strategy Hunter"




1. Income Projection Statement

- Instructions for Income Projection Statement

2. Balance Sheet

- Instructions for Balance Sheet

3. Monthly Cash Flow Projection

- Instructions for Monthly Cash Flow Projection

4. Information Resources



Industry J F M A M J J A S O N D Annual Annual

% total %

Total net sales (revenues)

Costs of sales

Gross profit

Gross profit margin

Controllable expenses


Payroll expenses




Office supplies




Total controllable


Fixed expenses






Loan payments


Total fixed expenses

Total expenses

Net profit (loss)

before taxes


Net profit (loss) after




The income projections (profit and loss) statement is valuable as

both a planning tool and a key management tool to help control

business operations. It enables the owner/manager to develop a

preview of the amount of income generated each month and for the

business year, based on reasonable predictions of monthly levels

of sales, costs and expenses.

As monthly projections are developed and entered into the income

projections statement, they can serve as definite goals for

controlling the business operation. As actual operating results

become known each month, they should be recorded for comparison

with the monthly projections. A completed income statement allows

the owner/manager to compare actual figures with monthly

projections and to take steps to correct any problems.

Industry Percentage

In the industry percentage column, enter the percentages of total

sales (revenues) that are standard for your industry, which are

derived by dividing

Costs/expenses items x 100%


total net sales

These percentages can be obtained from various sources, such as

trade associations, accountants or banks. The reference librarian

in your nearest public library can refer you to documents that

contain the percentage figures, for example, Robert Morris

Associates' Annual Statement Studies (One Liberty Place,

Philadelphia, PA 19103).

Industry figures serve as a useful bench mark against which to

compare cost and expense estimates that you develop for your

firm. Compare the figures in the industry percentage column to

those in the annual percentage column.

Total Net Sales (Revenues)

Determine the total number of units of products or services you

realistically expect to sell each month in each department at the

prices you expect to get. Use this step to create the projections

to review your pricing practices.

- What returns, allowances and markdowns can be expected?

- Exclude any revenue that is not strictly related to the


Cost of Sales

The key to calculating your cost of sales is that you do not

overlook any costs that you have incurred. Calculate cost of

sales of all products and services used to determine total net

sales. Where inventory is involved, do not overlook

transportation costs. Also include any direct labor.

Gross Profit

Subtract the total cost of sales from the total net sales to

obtain gross profit.

Gross Profit Margin

The gross profit is expressed as a percentage of total sales

(revenues). It is calculated by dividing

gross profits


total net sales

Controllable (also known as Variable) Expenses

- Salary expenses -- Base pay plus overtime.

- Payroll expenses -- Include paid vacations, sick leave,

health insurance, unemployment insurance and social

security taxes.

- Outside services -- Include costs of subcontracts,

overflow work and special or one-time services.

- Supplies -- Services and items purchased for use in the


- Repair and maintenance -- Regular maintenance and repair,

including periodic large expenditures such as painting.

- Advertising -- Include desired sales volume and classified

directory advertising expenses.

- Car delivery and travel -- Include charges if personal car

is used in business, including parking, tools, buying

trips, etc.

- Accounting and legal -- Outside professional services.

Fixed Expenses

- Rent -- List only real estate used in business.

- Depreciation -- Amortization of capital assets.

- Utilities -- Water, heat, light, etc.

- Insurance -- Fire or liability on property or products.

Include workers' compensation.

- Loan repayments -- Interest on outstanding loans.

- Unspecified; small expenditures without

separate accounts.

Net Profit (loss)

(before taxes) - Subtract total expenses from gross profit.

Taxes - Include inventory and sales tax, excise

tax, real estate tax, etc.

Net Profit (loss)

(after taxes) - Subtract taxes from net profit (before


Annual Total - For each of the sales and expense items in

your income projection statement, add all

the monthly figures across the table and

put the result in the annual total column.

Annual Percentage - Calculate the annual percentage by dividing

Annual total x 100%


total net sales

- Compare this figure to the industry

percentage in the first column.




As of ____________________________, 19____


Current assets

Cash $_______

Petty cash $_______

Accounts receivable $_______

Inventory $_______

Short-term investment $_______

Prepaid expenses $_______

Long-term investment $_______

Fixed assets

Land $_______

Buildings $_______

Improvements $_______

Equipment $_______

Furniture $_______

Automobile/vehicles $_______

Other assets

1. $_______

2. $_______

3. $_______

4. $_______

Total assets $______


Current Liabilities

Accounts payable $______

Notes payable $______

Interest payable $______

Taxes payable

Federal income tax $______

State income tax $______

Self-employment tax $______

Sales tax (SBE) $______

Property tax $______

Payroll accrual $______

Long-term liabilities

Notes payable $______

Total liabilities $______

Net worth (owner equity) $______




(name's) equity $_____

(name's) equity $_____



Capital stock $_____

Surplus paid in $_____

Retained earnings $_____

Total net worth $_____

Total liabilities and

total net worth $_____

(Total assets will always equal total liabilities and total net




Figures used to compile the balance sheet are taken from the

previous and current balance sheet as well as the current income

statement. The income statement is usually attached to the

balance sheet. The following text covers the essential elements

of the balance sheet.

At the top of the page fill in the legal name of the business,

the type of statement and the day, month and year.


List anything of value that is owned or legally due the business.

Total assets include all net values. These are the amounts

derived when you subtract depreciation and amortization from the

original costs of acquiring the assets.

Current Assets

- Cash -- List cash and resources that can be converted into

cash within 12 months of the date of the balance sheet (or

during one established cycle of operation). Include money

on hand and demand deposits in the bank, e.g., checking

accounts and regular savings accounts.

- Petty cash -- If your business has a fund for small

miscellaneous expenditures, include the total here.

- Accounts receivable -- The amounts due from customers in

payment for merchandise or services.

- Inventory -- Includes raw materials on hand, work in

progress and all finished goods, either manufactured or

purchased for resale.

- Short-term investments -- Also called temporary

investments or marketable securities, these include

interest- or dividend-yielding holdings expected to be

converted into cash within a year. List stocks and bonds,

certificates of deposit and time-deposit savings accounts

at either their cost or market value, whichever is less.

- Prepaid expenses -- Goods, benefits or services a business

buys or rents in advance. Examples are office supplies,

insurance protection and floor space.

Long-term Investments

Also called long-term assets, these are holdings the business

intends to keep for at least a year and that typically yield

interest or dividends. Included are stocks, bonds and savings

accounts earmarked for special purposes.

Fixed Assets

Also called plant and equipment. Includes all resources a

business owns or acquires for use in operations and not intended

for resale. Fixed assets may be leased. Depending on the

leasing arrangements, both the value and the liability of the

leased property may need to be listed on the balance sheet.

- Land -- List original purchase price without allowances

for market value.

- Buildings

- Improvements

- Equipment

- Furniture

- Automobile/vehicles


Current Liabilities

List all debts, monetary obligations and claims payable within 12

months or within one cycle of operation. Typically they include

the following:

- Accounts payable -- Amounts owed to suppliers for goods

and services purchased in connection with business


- Notes payable -- The balance of principal due to pay off

short-term debt for borrowed funds. Also includes the

current amount due of total balance on notes whose terms

exceed 12 months.

- Interest payable -- Any accrued fees due for use of both

short- and long-term borrowed capital and credit extended

to the business.

- Taxes payable -- Amounts estimated by an accountant to

have been incurred during the accounting period.

- Payroll accrual -- Salaries and wages currently owed.

Long-term Liabilities

Notes payable -- List notes, contract payments or mortgage

payments due over a period exceeding 12 months or one cycle of

operation. They are listed by outstanding balance less the

current position due.

Net worth

Also called owner's equity, net worth is the claim of the

owner(s) on the assets of the business. In a proprietorship or

partnership, equity is each owner's original investment plus any

earnings after withdrawals.

Total Liabilities and Net Worth

The sum of these two amounts must always match that for total




Name of Business Owner Type of Business Prepared by Date

Pre-start- 1 2 3 4 5 6 Total

up position Columns 1-6

Year Month

Est.* Act.* Est.Act. Est.Act. Est.Act. Est.Act. Est.Act.


1. Cash on hand (beginning


2. Cash receipts

(a) Cash sales

(b) Collections from credit


(c) Loan or other cash

injections (specify)

3. Total cash receipts


4. Total cash available

(before cash out) (1+3)

5. Cash paid out

(a) purchases (merchandise)

(b) Gross wages (excludes withdrawals)

(c) Payroll expenses (taxes, etc.)

(d) Outside services

(e) Supplies (office and


(f) Repairs and maintenance

(g) Advertising

(h) Car, delivery and travel

(i) Accounting and legal

(j) Rent

(k) Telephone

(l) Utilities

(m) Insurance

(n) Taxes (real estate, etc.)

(o) Interest

(p) Other expenses (specify


(q) Miscellaneous


(r) Subtotal

(s) Loan principal payment

(t) Capital purchases


(u) Other start-up costs

(v) Reserve and/or escrow


(w) Owner's withdrawal

6. Total cash paid out (5a

through 5w)

7. Cash position (end of

month) (4 minus 6)

Essential operating data

(non-cash flow information)

A. Sales volume (dollars)

B. Accounts receivable

(end on month)

C. Bad debt (end of


D. Inventory on hand (end

of month)

E. Accounts payable (end

of month)



1. Cash on hand (beginning of month) -- Cash on hand same as (7),

Cash position, pervious month

2. Cash receipts-

(a) Cash sales-- All cash sales. Omit credit sales unless cash

is actually received

(b) Gross wages (including withdrawals)-- Amount to be

expected from all accounts.

(c) Loan or other cash injection-- Indicate here all cash

injections not shown in 2(a) or 2(b) above.

3. Total cash receipts (2a+2b+2c=3)

4. Total cash available (before cash out)(1+3)

5. Cash paid out -

(a) Purchases (merchandise)--Merchandise for resale or for use

in product (paid for in current month).

(b) Gross wages (including withdrawals)--Base pay plus

overtime (if any)

(c) Payroll expenses (taxes, etc.)-- Include paid vacations,

paid sick leave, health insurance, unemployment insurance,

(this might be 10 to 45% of 5(b))

(d) Outside services--This could include outside labor and/or

material for specialized or overflow work, including


(e) Supplies (office and operating)--Items purchased for use

in the business (not for resale)

(f) Repairs and maintenance-- Include periodic large

expenditures such as painting or decorating

(g) Advertising--This amount should be adequate to maintain

sales volume

(h) Car, delivery and travel--If personal car is used, charge

in this column, include parking

(i) Accounting and legal--Outside services, including, for

example, bookkeeping

(j) Rent-- Real estate only (See 5(p) for other rentals)

(k) Telephone

(l) Utilities--Water, heat, light and/or power

(m) Insurance-- Coverage on business property and products

(fire, liability); also worker's compensation, fidelity,

etc. Exclude executive life (include in 5(w))

(n) Taxes (real estate, etc.)-- Plus inventory tax, sales tax,

excise tax, if applicable

(o) Interest--Remember to add interest on loan as it is

injected (See 2(c) above)

(p) Other expenses (specify each)



Unexpected expenditures may be included here as a safety


Equipment expenses during the month should be included

here (non-capital equipment)__________________________

When equipment is rented or leased, record payments here

(q) Miscellaneous (unspecified)--Small expenditures for which

separate accounts would be practical

(r) Subtotal--This subtotal indicates cash out for operating


(s) Loan principal payment--Include payment on all loans,

including vehicle and equipment purchases on time payment

(t) Capital purchases (specify)--Nonexpensed (depreciable)

expenditures such as equipment, building purchases on time


(u) Other start-up costs--Expenses incurred prior to first

month projection and paid for after start-up

(v) Reserve and/or escrow (specify)-- Example: insurance, tax

or equipment escrow to reduce impact of large periodic


(w) Owner's withdrawals-- Should include payment for such

things as owner's income tax, social security, health

insurance, executive life insurance premiums, etc.

6. Total cash paid out (5a through 5w)

7. Cash position (end on month) (4 minus 6)-- Enter this amount

in (1) Cash on hand following month--

Essential operating data (non-cash flow information)--This is

basic information necessary for proper planning and for proper

cash flow projection. Also with this data, the cash flow can be

evolved and shown in the above form.

A. Sales volume (dollars)--This is a very important figure and

should be estimated carefully, taking into account size of

facility and employee output as well as realistic

anticipated sales (actual sales, not orders received).

B. Accounts receivable (end of month)-- Previous unpaid credit

sales plus current month's credit sales, less amounts

received current month (deduct "C" below)

C. Bad debt (end on month)-- Bad debts should be subtracted

from (B) in the month anticipated

D. Inventory on hand (end on month)-- Last month's inventory

plus merchandise received and/or manufactured current month

minus amount sold current month

E. Accounts payable (end of month) Previous month's payable

plus current month's payable minus amount paid during


F. Depreciation--Established by your accountant, or value of

all your equipment divided by useful life (in months) as

allowed by Internal Revenue Service


U.S. Small Business Administration (SBA)

The SBA offers an extensive selection of information on most

business management topics, from how to start a business to

exporting your products.

This information is listed in "Resource Directory for Small

Business Management." For a free copy your nearest SBA


SBA has offices throughout the country. Consult the U.S.

Government section in your telephone directory for the office

nearest you. SBA offers a number of programs and services,

including training and educational programs, counseling services,

financial programs and contract assistance. Ask about

* Service Corps of Retired Executives (SCORE), a national

organization sponsored by SBA of over 13,000 volunteer

business executives who provide free counseling, workshops

and seminars to prospective and existing small business


* Small Business Development Centers (SBDCs), sponsored by

the SBA in partnership with state and local governments,

the educational community and the private sector. They

provide assistance, counseling and training to prospective

and existing business people.

* Business Information Centers (BICs), offering state-of-the-

art technology, informational resources and on-site

counseling for start-up and expanding businesses to create

business, marketing and other plans, do research, and

receive expert training and assistance.

For more information about SBA business development programs and

services, call the SBA Small Business Answer Desk at 1-800-U-ASK-

SBA (827-5722).

Other U.S. Government Resources

Many publications on business management and other related topics

are available from the Government Printing Office (GPO). GPO

bookstores are located in 24 major cities and listed in the

Yellow Pages under the "bookstore" heading. You can request a

"Subject Bibliography" by writing to Government Printing Office,

Superintendent of Documents, Washington, DC 20402-9328.

Many federal agencies offer publications of interest to small

businesses. There is a nominal fee for some, but most are free.

Below is a selected list of government agencies that provide

publications and other services targeted to small businesses. To

get their publications, contract the regional offices listed in

the telephone directory or write to the addresses below:

Consumer Information Center (CIC)

P.O. Box 100

Pueblo, CO 81002

The CIC offers a consumer information catalog of federal


Consumer Product Safety Commission (CPSC)

Publications Request

Washington, DC 20207

The CPSC offers guidelines for product safety requirements.

U.S. Department of Agriculture (USDA)

12th Street and Independence Avenue, SW

Washington, DC 20250

The USDA offers publications on selling to the USDA. Publications

and programs on entrepreneurship are also available through

county extension offices nationwide.

U.S. Department of Commerce (DOC)

Office of Business Liaison

14th Street and Constitution Avenue, NW

Room 5898C

Washington, DC 20230

DOC's Business Assistance Center provides listings of business

opportunities available in the federal government. This service

also will refer businesses to different programs and services in

the DOC and other federal agencies.

U.S. Department of Health and Human Services (HHS) - Public

Health Service

Alcohol, Drug Abuse and Mental Health


5600 Fishers Lane

Rockville, MD 20857

Drug Free Workplace Helpline: 1-800-843-4971. Provides

information on Employee Assistance Programs.

National Institute for Drug Abuse Hotline:

1-800-662-4357. Provides information on preventing substance

abuse in the workplace.

The National Clearinghouse for Alcohol and Drug Information:

1-800-729-6686 toll-free. Provides pamphlets and resource

materials on substance abuse.

U.S. Department of Labor (DOL)

Employment Standards Administration

200 Constitution Avenue, NW

Washington, DC 20210

The DOL offers publications on compliance with labor laws.

U.S. Department of Treasury

Internal Revenue Service (IRS)

P.O. Box 25866

Richmond, VA 23260


The IRS offers information on tax requirements for small


Environmental Protection Agency Office of Small Business Ombudsman

U.S. Environmental Protection Agency (EPA)

Small Business Ombudsman

Room 3423

401 M Street, S.W.

Washington, D.C. 20460

1-800-368-5888 except in DC and VA

202-260-1211 in DC and VA

The EPA offers more than 100 publications designed to help small

businesses understand how they can comply with EPA regulations.

U.S. Food and Drug Administration (FDA)

FDA Center for Food Safety and Applied Nutrition

200 C Street, SW

Washington, DC 20204

The FDA offers information on packaging and labeling requirements

for food and food-related products.

For More Information

A librarian can help you locate the specific information you need

in reference books. Most libraries have a variety of directories,

indexes and encyclopedias that cover many business topics. They

also have other resources, such as

* Trade association information

Ask the librarian to show you a directory of trade

associations. Associations provide a valuable network of

resources to their members through publications and

services such as newsletters, conferences and seminars.

* Books

Many guidebooks, textbooks and manuals on small business are

published annually. To find the names of books not in your

local library check Books In Prints, a directory of books

currently available from publishers.

* Magazine and newspaper articles

Business and professional magazines provide information that

is more current than that found in books and textbooks.

There are a number of indexes to help you find specific

articles in periodicals.

In addition to books and magazines, many libraries offer free

workshops, lend skill-building tapes and have catalogues and

brochures describing continuing education opportunities.

Word Count: 7550

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