- LATIN AMERICA
- MIDDLE EAST
- United Kingdom
- United States
- New Zealand
- South Africa
- Oil & Gas
- Real Estate
- 3M (MMM)
- AT&T (T)
- AIG (AIG)
- Alcoa (AA)
- Altria (MO)
- American Express (AXP)
- Apple (AAPL)
- Bank of America (BAC)
- Boeing (BA)
- Caterpillar (CAT)
- Chevron (CVX)
- Cisco (CSCO)
- Citigroup (C)
- Coca Cola (KO)
- Dell (DELL)
- DuPont (DD)
- Eastman Kodak (EK)
- ExxonMobil (XOM)
- FedEx (FDX)
- General Electric (GE)
- General Motors (GM)
- Google (GOOG)
- Hewlett-Packard (HPQ)
- Home Depot (HD)
- Honeywell (HON)
- IBM (IBM)
- Intel (INTC)
- Int'l Paper (IP)
- JP Morgan Chase (JPM)
- J & J (JNJ)
- McDonalds (MCD)
- Merck (MRK)
- Microsoft (MSFT)
- P & G (PG)
- United Tech (UTX)
- Wal-Mart (WMT)
- Walt Disney (DIS)
- iHaveNet.com: Small Business Guide
Real Small Business
IV. Development and Production
In this section of your business plan you will describe the current state of your product or service and your plan for completing its development. This is also where you familiarize your reader with how your product is created or your service delivered.
The Development and Production section of your business plan must include details of development costs, location and labor requirements. After furnishing this information, you will be asked to generate some financial forms, including operating expenses, cost of goods, and cash flow.
Cost of Development
Expenses and Capital Requirements
Describe the current status of your product or service and what remains to be done to make your product or service ready to be marketed. Include a schedule detailing when this work will be completed. Consider using a traditional outline to create a product development schedule, or modify the launch plan you have created for internal use and provide a simplified version here. Readers of your plan, especially potential investors, will scrutinize your development plan to determine if you have thoroughly thought through all facets of the development of your product or service.
Include obtaining a patent/trademark/or copyright, or other steps that are important to the development of your business.
If your business plan is for a service company, there is still a strong need for a development status section. Service companies have to set up offices, make plans for fielding calls, get stationery and business cards, conduct market research, gather references, and do a sample mailing of sales pieces, among other things.
Venture capitalists and other lenders often focus on a few industries and will be well acquainted with the development procedure for a product or service like yours. For this reason, be sure to create a high-quality, detailed plan.
Turn to an industry association for help with the development process of a product or service like yours if you are early in the development cycle and are not confident that you are familiar with all stages.
Look in the library for books of sample business plans and check your development status section against the ones in these books.
An investor will only provide money for a business he or she understands, so walk the reader through the stages of product production from the inception of the idea to when it can be sold. With a service company, describe the process of delivering the service. A company that helps its customers determine Web strategy, for example, would describe the process of finding out about client objectives, researching current offerings on the Web, and presenting a solution. If you were starting a winery, your production process section would describe the harvesting, fermenting, and bottling processes.
Make or Buy
Part of your production process discussion will be a justification of the make or buy strategy for production components. Make or buy strategy focuses on whether you will create all components necessary for the production of your product or service in-house, or buy a service or a product to add to yours. If you are starting a consulting business, you might state in your plan that paying for the services of an administrative assistant (buy), will increase profits by enabling the company principals to spend more time on money-generating activities. A pillow production company, would discuss spikes in production and the cost savings incurred in subcontracting sewing (buy) rather than keeping the sewing (make) in-house.
Location, Location, Location
Also discuss geographic location for the production of your product or service. Justify this decision as well, by talking about savings in rent or lease, convenience to suppliers, labor, materials, or other factors important to your business.
Be sure to justify your make or buy strategy by explaining why your approach will lead your business to greater profits.
Avoid the common mistake of skipping the make or buy section and justification simply because you are starting or running a service business. If you are starting a consulting business, make a case for why assistants and other support staff will increase profits.
Do not forget to justify your choice of location. Some commonly-overlooked location benefits include proximity to transportation, and availability of skilled, affordable labor.
If you choose to locate your business in a home office, discuss the cost-savings of this choice of office. Also assure readers that a home office location will not be negatively perceived in your industry.
Cost of Development
Present and discuss a design and development budget. This budget should include the cost of the design of a prototype as well as the expense to take it into production. Be sure to include labor, materials, consulting fees, and the cost of professionals such as attorneys. While the cost of production section may be more readily apparent to product companies, this section is important for all businesses. Service businesses have expenses such as consulting services, training for principals, and preparation of materials, among many other things.
Design and development costs are often underestimated. Contact a trade group to find out about average industry costs for developing products similar to yours.
When charting costs, provide a contingency plan for what will happen to costs if problems such as delays, a failure to meet industry standards, mistakes, etc. occur.
Be sure to include the cost of patents and other elements necessary to the production of your product or service.
Your management team is outlined in the management section. This section provides details of other labor you will need to start up and run your business. Address how many people you require and what skills they need to possess. Be sure to cover the following issues:
Is there sufficient local labor? If not, how will you recruit.
Is labor trained? If not, how will you train them.
Cost of labor, current and future.
Plans for ongoing training.
Expenses and Capital Requirements
You must also create three financial forms that will build a foundation for the Financials section of your plan: operating expenses, capital requirements, and cost of goods. Generate spreadsheets for the year in which you establish your business as well as projections for two years after. You may require the help of an accountant or someone familiar with the cost of doing business in your industry and chosen business.
By creating a financial form called Operating Expenses, you pull together the expenses incurred in running your business. Expense categories include: marketing, sales, and overhead. Overhead includes fixed expenses such as administrative costs and other expenses that remain constant regardless of how much business your company does. Overhead also includes variable expenses, such as travel, equipment leases, and supplies.
This form details the amount of money you will need to procure the equipment used to start up and continue operations of your business. Capital Requirements also includes depreciation details of all purchased equipment. To determine your capital requirements, think about anything in your business that will require capital. For a diaper delivery service this might be a van, washing machines and dryers, irons and ironing boards, and supplies. Manufacturing companies obviously require more equipment for production. This equipment can fall into three categories: testing, assembly, and packaging.
Cost of Goods
For a manufacturing company, the cost of goods is the cost incurred in the manufacturing of the product. For a retail or wholesale business, the cost of goods (sometimes called the cost of sales) is the purchase of inventory. To generate a Cost of Goods table, you need to know the total number of units you will sell for a year as well as what other inventory you have on hand, and at what stage of production those units exist. For a manufacturing company, the cost of goods table will include materials, labor, and overhead related specifically to product manufacturing.
- Starting Up Your Business
- Coming Up With a Winning Business Idea
- Common Startup Mistakes
- The New Rules for Startups
- Business Incubator FAQs
- Naming Your Business
- Researching Your Business
- Your Personal Savings
- Registration, Licenses, and Permits
- Getting a Tax ID Number
- Fast-Growth Startup Resources
- Structuring Your Business
- Overview: Corporations
- State Offices of Incorporation
- Incorporate Out of State?
- Writing a Partnership Agreement
- Choosing a Board of Directors
- Basics of a C Corporation
- Basics of an S Corporation
- Basics of an LLC
- Basics of a Sole Proprietorship
- Basics of a Non-Profit Corporation
- Basics of a Professional Corporation
- Basics of a General Partnership
- Basics of a Limited Partnership
- Your Company's Public Relations
- Elements of a Successful Public Relations Campaign
- How to Use Your Press Coverage Effectively
- Press Releases
- How to Write a Successful Press Release
- Sample Product/Service Press Release
- Sample Commentary Press Release
- Sample Event Press Release
- Sample Tips Press Release
- Sample Personnel Press Release
- Effective Competitive Analysis
- Managing Purchasing to Maximize Cash Flow
- Top Six Pricing Mistakes Businesses Make
- How to Avoid Lowering Your Prices
- Bidding Basics
- Hiring Staff
- Creating an Effective Job Description
- Do You Know How to Pick Them?
- Little-Known Hiring Resources
- Classifying Contract Workers
- Tips for Successful Interviewing
- What You Can't Ask in a Job Interview
- New Hire Paperwork
- Small Business Insurance
- Types of Insurance for Small Businesses
- Small Business Insurance FAQs
- Insurance Resources for Small Businesses
- Home Office Insurance: Myths & Realities
- Small Business Resources
- Government Resources for Small Business on the Web
- Resources for Women Entrepreneurs
- Fast-Growth Startup Resources
- Small Business Security Resources
- Taking Time Off
- Your Pre-Vacation Checklist
- How to Take a Vacation
- Learning to Delegate
- Getting Away When You Can't Get Away
- Preparing for Tax Season
- Year-End Planning Tax Savers
- 10 Ways to Pay Less in Tax
- 25 Common Business Deductions and Expenses
- Avoid These Common Errors and Audit Triggers
- Understanding the Home Office Deduction
- Corporate Income Taxes Primer
- Employment Taxes Primer
- Sales Tax Primer
- Sole Proprietorships and Partnerships Tax Primer
- How to Get a Filing Extension
- Year-End Reconciliation
- Getting the Most from Your Accountant
- Developing Accurate Financial Projections
- Cash Flow
- 10 Ways to Help Increase Your Cash Flow
- Cash vs Accrual Accounting
- Bookkeeping and Record Keeping Basics
- Quick Ways to Get Through a Cash Crunch
- Projecting Cash Flow
- Cash Flow Triage
- Getting Funding
- Cash Flow Through Factoring
- Small Business Investment Corporations (SBIC)
- Traditional Funding Sources
- Non-Traditional Funding Sources
- Your Company's Credit
- How to Read a Business Credit Report
- Credit Terms Glossary for Your Small Business
- How to Protect and Improve Your Business Credit Rating
- Give Your Business the Financing Edge
- Employee Compensation
- Employee Benefits
- Bonuses: How To Be Fair
- Workers' Compensation Q&A
- Keeping Workers' Compensation Costs Down
- Payroll Management Choices
- Key Elements of Payroll
- Working with a Payroll Service Provider
- How to Create a Business Plan
How to Start Your Own Business: Creating a Business Plan - Development and Production
Article: Copyright ©. All rights reserved.