Chapter 3: Creating A Successful Business Plan

As you begin exploring the possibilities of opening a new restaurant or enhancing your current business, many ideas, emotions, and dreams are bouncing around in your head. Should you do this or would that be better? So many things to think about, where do you start? The answers are within the entrepreneur’s best guide and decision-making tool — your business plan.

I do not know too many people who are excited about the prospect of writing their business plan. It requires you to do extensive research, ask many questions, calculate current and future financial pictures, and do some real soul searching. Nevertheless, the benefits are worth the effort. Once you get everything down on paper, I am confident you will be glad you invested the time to think through the “good, bad, and the ugly” so that you can be prepared to handle a multitude of business situations. If your personal future and business success is not worth the time and effort it takes to write your business plan — then perhaps you should rethink whether you are ready to be a restaurant owner.

A business plan is a document where you:

1. Describe your new or existing business.

2. Define your customers’ needs and your ability to meet them.

3. Explore competitor strengths and weaknesses to outperform them.

4. Address possible stumbling blocks to success.

5. Establish yourself and your team as capable businesspeople and food artists.

6. Detail marketing strategies to capture your share of the market.

7. Set benchmarks and goals for launching, developing, and profit making.

8. Provide financial projections and returns on investment.

9. Ask for money to support your success.

10. Tell investors and lenders what is in it for them.

In this chapter I will discuss how to compile the information you need for a business plan. Are you still panicked about writing a business plan? Remember that your plan is a collection of information and ideas based upon your knowledge, expertise, background, and faith at that time. Your plan is not a rigid set of rules to live by, but a powerful living guide. As you move through each stage of your business development, you will learn new facts and gain additional experience that may alter your path and goals.

WHY DO I NEED A PLAN?

You need a business plan to explore your business ideas, determine their viability, and secure money to make your ideas happen. Most people concentrate on the last reason—to get money. Their plan is then written solely to attract outside investors or satisfy lender requirements. If you are writing your plan primarily for them, you are at risk of slanting the truth and overlooking other areas that will benefit you.

How You Can Benefit

Researching and writing your business plan offers multiple benefits for new and experienced restaurant owners. The process of developing the plan helps you solidify your desires and set your professional goals.

Writing your plan will:

1. Clarify your vision. Instead of just saying, “I’d like to own a restaurant,” you will be creating a Technicolor version of your cozy little Italian deli or your sleek and sophisticated restaurant featuring live jazz.

2. Prove your potential. You will prove to yourself and others that your community needs another steak house or tearoom. You may even discover that your idea is not a viable one. Too much competition, wrong location, inadequate customer base, or insufficient customer demand are all reasons to stop and reassess your ideas.

3. Look at obstacles. Every business venture will have obstacles. By looking at potential problems and outlining solutions, you will prepare yourself. Not all problem/solution scenarios will make it into your plan, but you will uncover many of them as you research your business prospects, vendors, lenders, and employees.

4. Determine your business’s viability. Are your goals exceptionally high? Is the idea too trendy? Will it have sufficient lifespan to repay lenders? Will investors be attracted to the idea?

5. Project your success. Will your restaurant provide you with the personal and financial rewards you are seeking? Can you physically or emotionally deal with the workload? Do you have sufficient experience to make it happen?

6. Secure ample capital. By projecting your cash flow and working capital needs, you will have a better understanding of how much money you have coming through the door every day to pay vendors, lenders, and employees. Before you invest your whole nest egg or borrow money, you must decide if you will have enough money (from every possible source) to keep you afloat until profits roll in. Insufficient capitalization is a primary reason why new businesses fail.

GREAT RISKS, GREAT REWARDS

As an entrepreneur, you are the one with the greatest investment and the most at risk. Your financial future, emotional and physical health, and reputation are on the line. Sure, investors and lenders have a risk — that is why they ask for ownership rights or charge interest. A well-researched business plan looks at and analyzes various risk factors. No one likes to think about failing, but truthfully, the success rate for new restaurants is not exceptionally high. The better prepared you are, the more likely you will be one of the successful ones.

Everyone focuses on the process of writing the plan. How do I convince the lender to grant the loan? What if my writing skills are not the best? I will address these issues in later chapters. Right now, I want you to concentrate on research. Corporations invest millions on research before launching a new sales division or product line. Your diligence in researching your customer demographics, competitors, equipment purchases, menu choices, and more is just as important. It is your key to determining whether your dream can be successful.

NO PROFITS, NO REASON

Sometimes business owners discover after months of research and number crunching that their idea has insufficient profit potential. As you look at all the variables, create sales and expense reports, and set budgets, you must be proving that you will be profitable within a reasonable time. These profit points also must be worth your time and effort. It is not just earning money that counts, but is it enough to finance your growth, pay your employees fairly, provide a quality product, and have enough to live on?

If your plan tells you that your idea is not a profit-maker, it will have been time well spent. Saving yourself from potential financial ruin, long-term debt, and stress is an invaluable lesson.

WHO SHOULD REVIEW YOUR BUSINESS PLAN

Your business plan should be reviewed by your accountant and legal counsel, who should have been consulted on specific sections of the plan. Their comments can be invaluable for catching confusing passages or fine-tuning ideas.

Your banker should be the next person to assist you. In some smaller communities, businesspeople will have a personal relationship with a local bank. Even if you are not seeking a loan, a business specialist banker has experience in reviewing business plans and can give you feedback.

Other Outside Advisors and Consultants

You may find other people in your community who can provide you with advice, recommendations, and a critique of your plan. Your local university or community college may have a business development advisor on staff. SCORE, a volunteer program manned by retired businesspeople, provides no- or low-cost counseling aimed at helping businesspeople succeed. You can find more information on SCORE at www.score.org.

WHO WILL USE YOUR BUSINESS PLAN

Investors (family, friends, outside professionals) will need a full version of your business plan to review its profitability potential. Lenders (bank, credit union, government, family/ friends) will also need a full version to determine your ability to repay loans. Both will be looking at your idea along with your financial projections.

Your insurance agent may want to see sections of your plan to help determine your business insurance needs such as liability, auto, fire, casualty, theft, and life.

Your real estate broker may want to see sections of your plan to help you locate the right property (land or land and building) for your new restaurant. Your architect or builder/ contractor may also want to review parts of your plan as they begin designing a new building, planning renovations, or specifying remodeling projects. Other designers (landscape, interior, kitchen, lighting, sound) may also benefit from seeing your vision.

Confidentiality/Non-Disclosure Agreements

The information you gather and report in your business plan is confidential. While it may not be top secret, it is in your best interest to have interested parties sign a non-disclosure agreement before reviewing your plan. A non-disclosure agreement outlines that the information is proprietary and confidential and not to be shared, copied, distributed, or discussed with unauthorized parties. This agreement can be verbal or written. Should a violation of the agreement occur, a written agreement is your best bet. Investors may be hesitant to sign a non-disclosure agreement; however, terms can be negotiated. Your attorney can assist you with an appropriate agreement for your situation and advise you on when to use it.

Please be aware that bankers, lenders, and venture capitalists are professionals bound to confidentiality. Requiring a non-disclosure agreement (and/or contract clause) may be considered insulting so be careful when requiring a signed agreement.

WHAT INTERESTED PARTIES SHOULD FIND IN YOUR PLAN

Everyone who reads your business plan will be looking for something different based upon his or her needs. The messages within your plan can play an important roll in selling your concept; these are the soul of your business and can affect how people respond to your requests for support. Even bankers, who want to see strong financials, are looking for a gut reaction that tells them you are worth the investment.

Your Family

Your first support group should be your family members. You will have a network of people interested in your success. In addition, family members are a common source of start-up capital. Your family should see why your dream is important to you and how they can take an active role in its success.

Your Partners

Whether you have a silent or active partnership arrangement, everyone should share the vision expressed in the plan. You will not be detailing assigned duties, but general responsibilities based upon experience and skills will be outlined. If you have partners, you will be writing the plan together. You may co-author each section or only work on specific sections that require your expertise. If partners are assigned sections to research and write, be certain that the writing style and “voice” remain consistent throughout to avoid confusing the reader. You may also use your business plan to help you secure a partner. Perhaps you are a talented chef looking for a partner with more front-of-the-house experience or you are a great restaurant manager searching for a partner with outstanding culinary talents.

Partner(s) should see a healthy partnership, a mutual respect, and their value to the business in your restaurant’s business plan. Their role in the business should provide them with more than money — it should fulfill their entrepreneurial dreams also.

Your Lender

Anyone who gives you money in exchange for periodic payments and interest is a lender. Lenders can be a family member or friend, bank, private organization or government agency.

Family Members and Friends

Borrowing from family members and friends can be an excellent way to finance your business launch or growth. While you may not have a lengthy loan application, you should treat these loans just as seriously as you would a bank loan.

Have your attorney draw up an appropriate contract for all parties to sign. Creating a financial relationship with family and friends can have more than financial risks. Everyone must separate the business arrangement from personal interactions. You should also consider what might happen if you are unable to repay the loan according to its terms or should your business fail. Even if everyone shakes hands and agrees to the lender/borrower terms, people just cannot seem to separate their personal feelings when it comes to doing business with family and friends.

Bankers

Your banker may be an advocate for your business. Additional business banking services may also be available to you just for the asking. In the age of ATMs and Web-based banks, many have lost touch with the value of a bank professional. Even major national bank conglomerates offer business services through a specific department. Regional and state banks use their individualized business banking services as a way to set themselves apart from the national banks. Shop around for a small-business banker and meet him face to face.

This relationship can prove to be invaluable and costs you nothing more than your time. Secured loans use real property (business or personally owned) or other tangible assets as collateral. There are other types of collateral such as community economic development, personal goodwill, or just your potential for success.

Bankers should see that your business will have ample capital and resources for continuous operation over several months (and maybe even more than a year) and sufficient profits to pay back your loan on time.

Private organizations

Depending upon your community’s economic needs, you may qualify for financial support in the way of low-interest loans or grants (essentially a financial gift) through privately funded organizations and associations. These funds are typically used to stimulate economic development in high-risk communities or economic parity for woman and minorities. Check your local business development agency to see if they have a list of private loans and grant programs.

Philanthropic organizations should see that you, your community, and your restaurant meet their criteria for economic support. They will consider your ability to repay your loan. If you are applying for a grant, they will look at your potential for success, contribution to the community (creating jobs, paying taxes, rejuvenating neighborhoods), and need.

Government agencies

Have you ever seen the guy in the loud suit with question marks shouting on TV about the millions to be had from government agencies for whatever purposes you can dream up? The fact is there actually are national, state and county agencies that can provide you with loans and grants.

The federal government, through the Small Business Administration, is a major supporter of small businesses. The SBA does not directly loan you money; their role is to underwrite small business loans through local banks. You will need to meet all SBA loan requirements along with the bank’s.

Publicly funded grants operate similarly to privately funded ones and are targeted at people and communities that need economic stimulus. Government agencies should see that your business would be capable of repaying loans. Grant applications will be reviewed for their ability to satisfy the grant program’s mission.

Your Investors

Any person or business who gives you money in exchange for a share of ownership is an investor. Investors can be a family member or friend, an angel investor, or a venture capitalist.

Investors typically come into play when you are unable to obtain a conventional loan. Where as a lender might be charging 9.5 percent interest and has no stake in your business, investors will want to own a percentage of your restaurant. Ownership equals a greater risk, so this money will cost you more. You will not only have a financial relationship, you may also be entering into a partnership. While your investor(s) may not actually help you run your restaurant, they will have expectations and needs that you will have to meet.

Investors should see that your business has an excellent profit potential. They will be looking at your numbers first. A plan that does not demonstrate an ample return on their investment may not be worth their time. They will also want to see that you and your team have the ability to start and operate a successful restaurant.

Your Employees

Key personnel such as head chefs, master bakers, and managers not only serve your customers, they also serve you. Their energy, enthusiasm, expertise, and input are the foundation of your business. If you have an existing business, involve your staff in the development or updating of your business plan. You may not feel comfortable sharing specific aspects of your financial plan; however, involving your staff in researching, developing, and writing portions of the plan can be a wise decision. Not only can you tap into their skills and expertise, you also empower them to think creatively and to own the idea. This ownership mentality is invaluable in making your goals and creating a successful restaurant.

Your employees should see how they can make a difference, what your mutual goals are, and how you will actively support them. Your plan can also establish success benchmarks, business guidelines, and employee performance standards.

Your Suppliers

As a new business, establishing yourself with vendors can be arduous. Even existing businesses have failed to develop strong business partnerships with their suppliers only to discover that there is little or no goodwill to trade upon. You may find it advantageous to share sections of your business plan with select vendors. Although companies do not base your established credit line on projections and owner bios, you may find partners who will extend you courtesies and considerations that you had not even considered. Solid companies want to build long-term relationships with trusted customers. Sharing your vision and potential may be a way to start that relationship.

Your suppliers should see the fiscal wisdom of your endeavor and see the payoff (in long-term business with increasing purchase volume). Select vendors may learn how you intend to use equipment/services and how working with you can prove profitable for everyone.

WHO SHOULD WRITE YOUR BUSINESS PLAN?

As I have emphasized already, the person who gains the most wisdom from the research and writing of the business plan is you. By writing the plan yourself (or with the help of business partners or key employees), you will be able to document your ideas, ensure that the research is appropriate and accurate, and gain a better understanding of the financial aspects of operating your restaurant. Your business plan should incorporate your dreams and passions — no one else is better suited to that task.

BUT I ONLY WANT TO BE A RESTAURATEUR

The analysis skills used in developing your business plan are the same ones you will use to become a successful restaurant owner. There is no better time than now — before you become consumed with daily business needs — to learn all about your community and competitors, practice reading and interpreting financial reports, calculate your break-even numbers, and create a realistic, I-can-be-successful-with-this budget. Once you aggressively begin your launch, you will need to make quick decisions based upon solid research. When your doors open, having this information gives you a solid foundation to successfully handle the difficulties that are inevitable in any business.

If you are hesitant about your own research and writing skills, there are plenty of resources to guide you, along with experts to review and fine-tune your finished plan. There are books, software programs, support consultants, classes and seminars designed to help you with the gathering and writing process. When I say “do-it-yourself,” I am referring to you being the primary developer of your business plan, but that does not mean outside support is discouraged. Remember, you are already getting outside expert advice as you read this book.

If, after reading this book, you still feel uncertain about writing your own business plan, there are other sources for business plan advice and training.

Web-Based Advice

The Web is brimming with information on writing business plans. You can become overwhelmed with all the free advice online. To make it easier, I have created a list of some of the best sites.

Business Plan Classes

You can take classes or attend seminars online, via the telephone, at your local community college, or through your state’s small-business or economic development agency.

Local business plan writing classes for entrepreneurs are an excellent time and money investment. You will learn plenty of other skills that you will find helpful as a restaurant owner. You will have peers to network with and classes often feature local experts (bankers, accountants, lawyers, etc.) who also offer one-on-one counseling.

Local Classes

You will find business plan writing classes and seminars by contacting:

• SCORE, www.score.org, for local classes.

• NxLevel, www.nxlevel.org, for local nonprofit programs and classes.

• Your community college’s or university’s school of business.

• Your city’s chamber of commerce or state’s small-business development agency.

• Local economic development nonprofit organizations.

• Your business banker or accountant.

• Your state and/or national restaurant and food service associations.

• Local newspapers (and their websites)

Online Classes

You can attend a class at your convenience on the Web. Here are a few available sources:

• Writing Trainers — www.writingtrainers.com

• Web Campus — www.webcampus.stevens.edu

• Small Biz Lending and SBA — www.smallbizlending.com/resources/workshop/sba.htm, slideshow class

Teleclasses

A teleclass is where you call a specific phone number and punch in an assigned code. You are then connected with the lecturer and other attendees. You will have to pay any long-distance fees in addition to the tuition. Here are a few available sources.

• Career Masters Institute www.cminstitute.com/EntreprenurialEagles.html — a variety of business teleclasses

• Parker Associates www.asparker.com/freecoaching.html — free teleclass

Software-Specific Classes

When reviewing and choosing business plan software, check out online tutorials and/or third-party consultants to guide you with specific business plan software packages. These classes should not be for software technical support, but how to write your plan using the tools provided.

Software Programs

There are several business plan software programs designed to help you gather your thoughts and write a standardized plan for restaurant operators. Others will provide you with text ideas and a boilerplate format. Beware that cutting and pasting canned text will result in an ordinary plan with little individuality.

WRITING ALTERNATIVES

Technically all you need is a basic word processor, a calculator, and a printer to turn out a professional-looking business plan. With this book and a few online reference sites, you may be able to write your own business plan from scratch. Not everyone feels comfortable with the process and the financial data and projections typically trip up most new entrepreneurs. That is where business plan software can come to your rescue.

The interactive nature of business planning software can help you through the entire process and make it a very wise investment. Software templates with a fill-in-the-blanks format and sample business plans can stimulate ideas and help you get over a frightening blank page. Most commercial products offer sample plans for restaurants and other food service businesses. A few have specific tools for launching a new restaurant or for seeking improvement capital for existing restaurants.

SEARCHING FOR A BUSINESS PLAN WRITER

Before you begin the search process, you need to be able to tell potential candidates what you want, when you want it, and what data and information you can give them to work with. Writers may actually interview you. Others will have complex forms that you will complete. The better prepared you are, the better results you will get.

Hiring a Business Plan Writer

As an experienced business plan writer, I personally understand why people come to me; however, I also know the value of writing your own plan as I have written plans for my own business ventures. You might consider the services of a restaurant consultant for writing your plan and/or conducting a feasibility study to determine the potential for your business venture.

Here is what you should look for in a business plan writer. A well-qualified business plan writer will have:

• Writing experience. Review sample business plans, along with other business writing. It takes a specific talent to be able to write insightful and compelling business documents. Remember, your plan is 1) a sales piece to sell your idea, 2) a plan of action, and 3) a set of realistic and attainable goals.

• Research experience. Unlike writing a work of fiction, you will need facts and analysis to support your ideas. Can your business plan writer handle a portion of this for you? Does he know what types of research are needed to create a customized plan?

• Listening abilities. Your plan is a reflection of your dreams and desires. Never hire someone who does not listen carefully to what you have to say.

• Questions. Does he ask lots of in-depth questions or just want you to fill out a short form to work from? The more he knows about you, your business proposal, and your concept, the better your finished plan will be.

• A business background. Does he or she have a business background that will provide an understanding of what it takes to be a successful businessperson? Business training can be a plus.

• Strong references. Word-of-mouth is the best way to find any service provider. Ask other businesspeople for a referral. If that is not possible, ask for a list of references that you can contact personally.

What It Will Cost You

Paying for a comprehensive plan can be costly with pricing based upon the research required, length of plan, turnaround time, and financial reports to be generated. There is no typical plan fee because a custom plan will have a custom price. You can expect to pay $1,200 to $10,000 for a top-notch professional business plan. Pricing variables are also based on your intended use, local prevailing rates, and the expertise of the plan writer.

Paying $150 to $300 for a plan will provide you with a boilerplate project that covers just the basics. Outside investors and lenders see these often and will not give you any bonus points for this type of professionally written plan. Be aware that your pay-and-go plan may be a poor investment.

Above the basic plan level, you will receive more personalized service and some advice. Review what is included with any quote along with any built-in review and revision procedures. Once you sign off and accept your plan, additional work will mean additional costs.

You will be required to pay a deposit, periodic payments (for projects running more than a month), and the balance upon completion.

Tell Them What You Need

When interviewing potential business plan writers (also known as business plan consultants), the first thing you should do is clarify who does what. Will you have to provide them with all background research on customers, competitors, economic situations, and financial reports? If the writer is not local, who will gather community-specific information? Does the writer have restaurant plan experience? You will save time and money if you do some basic research (for example, read this entire book) on what you need in and from your business plan.

Tell Them What You Want

Write down some specifics. Create a list of purposes and determine who will be reviewing your finished plan. Develop your elevator speech describing your future or current business. Do not be afraid to share your passion; if you bore your prospective plan writers with the facts, they may never catch the spirit. A business plan is a business document but it is also a sales piece — you will be selling investors, lenders, and others on your concept and ability to be profitable.

Your goal is to be able to say to prospective business plan writers “I need…” Even if your chosen plan-writing expert directs you differently, you will have a place to start the exploration.

Tell Them When You Need It

Writers will need to have an approximate completion date to provide you with a quote. If your time frame is flexible, you will not be paying any rush charges. However, do not let it drag on or you will lose your momentum and frustrate your consultant.

Tell Them What Resources You Have

Will you be providing all the supporting data? Do you have research that you have already completed? Do you have an accountant who will help with the financials? Is there an attorney to advise and review your business structure? Do you have a business plan that you have used in the past? What else can you provide the writer so he can deliver what you want and need?

Write a Request for Proposal (RFP)

In choosing a business plan writer, you must be able to tell each prospective consultant your requirements. The more specific you can be, the more accurate the quotes will be. A good way to accomplish that is with a written Request for Proposal (also known as an RFP).

An RFP describes the task (service/product) to be provided, outlines the scope of the need, establishes what qualifications are required, and asks consultants to bid. Having a set of rules from which to work will help consultants give you an accurate quote. In addition, you will know that each bid is based upon the same criteria so you do not have to factor in variables when comparing pricing and services to be provided.

If I Could Only Write an RFP

RFPs can be quite report-like; however, a basic outline clearly defining your needs and expectations can be quite adequate for quoting purposes. Quotes will be based upon your specifications so provide as much information as possible; be accurate and have a clear set of expectations. You will need a brief RFP if you want to search for business plan writers through various consultant and business service websites such as Guru, www.guru.com, or E-lance, www.elance.com. Many of these sites are free to businesses seeking assistance.

CONTRACTS AND AGREEMENTS

Your business plan writer should have a standard consulting contract that you will read carefully and sign. The contract should be reviewed by your attorney prior to signing. The contract should be a work-for-hire agreement where you own all copyrights to the complete plan including all original research, artwork, diagrams, and charts. The contract should also prevent the writer from using your name or any part of your plan for advertising or marketing purposes without your written permission. You may also want to include a non-disclosure agreement.

The contract will also outline periodic payments and what constitutes completed and accepted. You will want to watch for errors and omissions and do not sign off on anything that is not correct to the best of your knowledge. You will be accepting the plan as accurate and presenting the facts as true to investors and lenders.

Confidentiality/Non-Disclosure Clauses

You may be sharing confidential ideas and information with a stranger. A confidentiality (also known as non-disclosure) clause can be especially important if you are hiring someone locally where there is a greater chance that competitive restaurateurs would use the same expert.

WHAT DOES A GOOD BUSINESS PLAN CONTAIN?

A good business plan contains dreams and ideas backed by facts and figures in a fairly standardized format. The standardized format makes it easier for lenders and investors (who look at hundreds and even thousands of business plans every month) to scan for specific information efficiently. Lenders may even just skim your plan and assign it to a lower-level employee who will read it thoroughly

Investors, with more demanding criteria for funding, may not actually read your plan at all. They will be checking specific sections for the potential return on their investment. Your financial reports and projections will provide them with enough information to either reject your request, refer the plan to a subordinate for full follow-up, or read it in full.

STANDARD BUSINESS PLAN FORMAT

There are specific sections that must be included in your business plan; however, the format can be varied to explain your business thoroughly. You may find sample plans with different titles, but the information will closely match the plan format outlined below.

I. Executive Summary

II. Background Information

a. Personal Information

i. Personal Skills and Expertise

ii. Personal Financial Capability

III. Business Concept

a. Mission Statement

b. Business Goals and Objective

c. General Description of Business

IV. Description of Products and Services

a. Features of Products/Services

b. Benefits to Customers

c. Future Products/Services

V. Management Structure and Organization

a. Legal Form

b. Ownership

c. Management and Personnel

VI. Marketing

a. Industry Description

i. Food Trends

ii. Industry Future

b. Marketing

i. Customer Profile

ii. Market Size

iii. Market Potential

c. Competition

i. Direct and Indirect

ii. Evaluation

d. Marketing Strategies

i. Marketing Positioning

ii. Business Location

iii. Pricing

iv. Customer Service

v. Advertising

vi. Promotion

VII. Financial Data

a. Investment Required for Start Up

i. Start-Up Costs/Needs

ii. Loan Applications

iii Capital Equipment and Supply List

b Income Projections (Profit and Loss Statements)

i. Three Year Summary

ii. Detail by Month, First Year

iii. Detail by Quarters, Second and Third Years

iv. Assumptions Upon Which Projections Are Based

c. Cash Flow Projections

i. Sales and Expenses Estimates

ii. Monthly Cash Flow Projections

d. Summary of Financial Needs

VIII. Conclusion

a. Feasibility Statement

IX. Support Documents

a. Copies of Personal Financial Documents

b. Copies of Franchise Contracts

c. Copies of Lease Agreements

d. Copies of Licenses

e. Copies of Legal Documents

f. Copies of Resumés

g Copies of Letters of Intent

Your plan will require some research to prove that your new restaurant concept or expansion has merit. You might want to get out a pad and pen to jot down notes on how you will complete each of the plan sections. Following the plan outline, I will define unfamiliar terms and provide you with some thought-provoking ideas to explore that need to be conveyed section-by-section.

Cover Page

You will need to include your legal business name, assumed business name (also known as “doing business as” or “DBA”), owner name(s), contact address, phone, fax, and e-mail information.

Table of Contents

This is the last page you will write for your plan.

Executive Summary

Your executive summary is an abbreviated version of your entire plan, written to catch the attention of your most important audience. Often busy lenders or investors will not read beyond the executive summary and your financial projections; therefore, it is imperative that your executive summary is a strong distillation of your research and plans for success. You will write this critical section after you have completed your plan.

BACKGROUND INFORMATION

Personal Resources

The background section covers the personal assets — skills, expertise, financial, and other personal resources — that all owners bring to the table. Like a résumé that gets you a dream job, this section will help you secure your dream business. The first half of this section should detail the work history, education, skills, and talents that you and your partners will rely on to become successful restaurant owners. Outline the food service-specific creative talents and work experience of each owner.

This information is presented to assure lenders and investors that you have what it takes to manage your restaurant and deliver profits. If the food service experience of your ownership team is not exceptionally strong, emphasize your accumulated business skills. You will have an opportunity in subsequent sections to discuss the talent and expertise you will be hiring to fill any gaps in your background.

Financial Resources

Your financial resources will be of great consideration to lenders and investors. Start by creating a personal financial statement listing your assets and liabilities to determine your net worth. Your net worth (and especially assets that can be easily converted to cash) will be of great interest to franchisers, as many have minimum net worth requirements. Bankers want to know what you will require as earnings from your business. Insufficient business (or other financial resources) earnings can undermine your ability to repay loans or become profitable.

Your financial contributions to launching a new business or expanding a current one are also of great interest. Ideas without personal funding are considered high-risk investments. Remember that finding money to fund 100 percent of your dream is virtually impossible. Lenders and investors will not be interested in a plan that requires their funds to be the only money at risk. As a new entrepreneur with no business assets, you will be asked to use your personal assets as loan collateral.

If you are turned down for outside funding because of a lack of personal finances, take your plan and transform it into a goal for yourself. Determine the percent of start-up and operating expenses you will need to have in hand before you can present your plan again to investors and lenders.

BUSINESS CONCEPT

Mission Statement

Also known as a statement of purpose, your mission statement is similar to the objective section of a résumé. This statement should capture the reasons why you personally want to be in business, what you want to accomplish with your business, who your business serves, and what your company is (or will be).

Mission statements are hard to write. They are more honest than an advertisement, more personal than a sales pitch, and a bit touchy-feely.

1. Start with your elevator pitch. Some experts believe that your mission statement should be very brief and easy to remember. Keep it as short as possible and never more than three or four sentences.

2. Write clearly and concisely for people who are not in the food service industry.

3. Do not brag; just be straightforward and realistic.

4. Do not go overboard with superlatives, such as unequalled service or fabulous food.

5. Think about what you want your customers to receive from dining at your restaurant. For example:

• You want them to be physically and emotionally satisfied.

• You want them to experience the pleasures of quality food.

• You want them to have fun.

6. Read Creating Mission Statements for Smaller Groups by Beverly Goldberg ($3.95 PDF download at www.amazon.com).

7. Look at sample statements of purpose for creative stimulus, but do not take one as your own as it simply will not capture the essence of your plan’s message.

Business Goals and Objectives

Your business goals and objectives will cover your short-term (within one year) and long-term (two to five years) expectations as a business and entrepreneur. Think of goals as your dreams with a deadline and your objectives as the way you will achieve those goals. Your goals are typically measured in dollars or other tangible results.

Common restaurant goals are:

• Sales volume.

• Hours the owner(s) work.

• Number of customers.

• Profit levels.

• Number of future employees.

• Cash flow.

• Expansion (additional stores or larger restaurant facility).

Objectives are the steps you will take to achieve these goals. These are measurable activities that answer the queries of who, what, how, why, and when.

• Who = Management team

• What = Increase customer returns

• How = Weekly customer service training

• Why = Happier customers equals repeat customers

• When = Three-month review and assessment

Your first goal — the launch of your new restaurant — is detailed on the next page.

BUSINESS GOALS
Short Term Goal	Long Term Goal
Goal #1 — Official restaurant opening date of November 5.	Goal #5 — Open second restaurant in local suburb in year three.
• Hire general manager to assist with overseeing complete renovation of leased building. • Hire general contractor with restaurant remodeling experience. • Obtain $50,000 capital equipment loan.	• Cash reserves of $150,000 to be set aside for expansion funding. • Set monthly savings goals to raise additional $150,000 in eight months. • Create training/mentoring program for assistant manager to be responsible for outfitting and starting second restaurant.

Start by creating three to five short-term goals and outline how you will achieve these. Be realistic and use your financial projections to benchmark and support your ability to reach each goal. Your objectives should be doable for a busy restaurant owner. It is okay to dream, but the purpose here is to set business and personal goals that are attainable — and go beyond the normal daily requirements of being in business for yourself.

General Description of Business

Your business description is an expanded paragraph that details what your business does. Start again with your elevator pitch (see Introduction). It includes descriptions of the products (food, beverage, other) that you will offer, your concept (theme, formal/ informal), your service style (dine-in, take-out), along with any other pertinent information that enables the reader to visualize your food service establishment. Your description can also include your legal business structure (corporation, partnership, sole proprietorship) and fiscal year (annual or other date). Your restaurant name — your brand name — will be revealed here.

Below are two examples of business descriptions for food service establishments.

BUSINESS DESCRIPTION SAMPLES

Example #1: Arden Meadows

Arden Meadows will be a seasonal café, located next to Lake Arden, featuring BBQ and American cuisine. Customers will be seasonal visitors to the 250-square-mile Lake Arden public-use region including the Mt. Ray National Park (U.S. Forest Service-operated camping facilities). Operating from May 15 through September 30, the café while have an informal sunflower theme and outdoor dining areas. Picnic-style take-out and sit-down service will be available. An adjoining full-service bar operated by the Big Beer Company will provide Arden Meadows’ customers with alcoholic beverages. Arden Meadows will be owned and operated by partners Jim Sweet and Fred Anderson as a Nevada limited liability corporation with a November 1 to October 31 accounting period.

Example #2: Fargo

Fargo is a family friendly steak house with a historical Wild West theme located at the Smithridge Mall in Irvine, California, near Interstate 5. Open seven days a week, Fargo serves Southern California tourists and residents with family oriented entertainment, including line dancing servers and classic country and western music. The menu features cowboy-style meals served family style in a rustic atmosphere including glass jars for mugs and tin plates as chargers. Owned and operated by the husband and wife partnership of Norman and Betty Paul, Fargo has shown a 35 percent annual pretax profit for the past six calendar years.

Your business description is your creation. You will not need to do any specific research to write this section. Look at sample business plans for other ideas on how to tell your story so a stranger would immediately know what your restaurant is like.

DESCRIPTION OF PRODUCTS/SERVICES

Restaurants sell products — foods and beverages — and they sell services. For example, your business could offer a 20-minute pizza delivery service, custom off-site catering, or banquets. A good way to define what you will sell and what services you offer is to create a list of features (what you offer customers) and add the benefits your customers will receive from each feature. Benefits are the what’s-in-it-for-me part of marketing your products and services.

Here are a few examples of the features and benefits that a café/bakery might offer to their customers.

SAMPLE FEATURES & BENEFITS
Feature	Benefit
Staff arrives very early for first shift.	Customers have plenty of time to stop by before work. Convenient time for local manufacturing plant workers on first shift.
Fresh baked bagels, muffins, and bread.	Convenient, great-tasting breakfast items for dine-in and take-out.
Custom decorated cakes.	Easy to stop by and order a special occasion cake. Place order during breakfast and pick up after work.
Fresh coffee with any purchase.	Save money eating here.
Delivery service.	No one has to leave a business meeting or luncheon to feed guests.

Lists are a great way to get ideas on paper. Your lists can be a single word or an entire thought to explain the topic. Grab that notepad and let your mind go to create lists from which to write your product/service description section.

• List 1: To help you develop your niche — what you do best and promote most—create another list that answers the question, what makes your products and/or services unique or special?

• List 2: How do you differ from your competitors? Are you higher priced? Do you offer take-out? Open longer? Write down every difference you can think of.

• List 3: What special resources do you have going for you? This can be anything from name recognition within your community to outstanding chef awards to a patent or trademark.

• List 4: How will you produce your product/service? Will everything be made in-house? What special equipment will be required?

• List 5: Are there any obstacles or negatives associated with your products? Need an air quality permit for a charbroiler? Is your menu too foreign for your community? Will you need to rely on hard-to-locate items? Are there limited vendors capable of supplying you?

• List 6: What products/services are in your future? Will you be able to respond to food trends? Will your customers want you to?

From Your Lists to Your Plan

The free-form nature of creating lists should reveal some good ideas and some great ones; concentrate on the great ones in your plan. Your first subsection is to describe in detail your products and services. You do not have to include recipes, but a sample menu is an appropriate support document.

Do not dismiss the off-the-wall ideas that appear on your lists. Some of the world’s greatest innovations came to life because someone let their imagination soar.

Discuss specific ingredients, preparation and serving methods. Tell the reader how these set you apart from competitors, why they are desired by customers, and your profit potential. Good marketing focuses on the benefits to the customers and your plan should do likewise. No matter how excited about a specific product you are, unless it connects with patrons, it is not a winner.

Your service (dining style, service levels, etc.) is also a critical part of your offerings and a way to set your business apart from the competition. Discuss how these affect the product quality, your customer needs, and profitability. Do not forget to tie your service style/methods into your customer demographics. For example: If you have a café serving a tourist area at a lake, your take-out window conveniently situated for docked boats is a real asset.

MANAGEMENT STRUCTURE AND ORGANIZATION

The legal form of your business is important to the operation, tax structure, and many other elements of the business operation. These were discussed in detail in Chapter 1.

The structure and organization will impact ownership percentages and participation requirements. After you review the information in Chapter 1, discuss the advantages and disadvantages with your accountant and/or attorney. They can offer advice on the best form for your business to protect yourself from personal financial risks and for the greatest tax benefits. A business may incorporate without an attorney, but legal advice is highly recommended.

Your Management Team

Managing a business requires more than just the desire to be your own boss. It demands dedication, persistence, the capacity to make wise decisions, and the ability to manage both employees and finances. Your management plan, along with your marketing and financial management sections, is your business foundation.

People are your greatest business resources and most valuable asset. To maximize your human resources, take a good look at the talents you possess and what skills you lack. Your job now is to hire personnel that can supply your missing skills.

Look at what you do best and how that can best serve your business. Even if you can create a profit and loss statement or design a Web page, you need to consider if this time is well spent. Until there are more than 24 hours in a day, you will need to invest your time in activities that earn money first. If you are the creative talent in the kitchen, do not be afraid to hire someone to handle the operational and support duties. Learn how to train people for advancement and delegate duties. Entrepreneurs often like to do it themselves or feel they are the only one who can do it; this style is a self-limited managerial style. Share the duties and responsibilities and you will have rewards to share.

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 management’s strengths/weaknesses? (Although you will not write directly about the weak spots in your team, they will be noticed by business professionals. Explain the missing skills before someone can question your team’s ability.)

• What are their duties?

• Are these duties clearly defined?

• If a franchise, what type of assistance can you expect from the franchiser? Will this assistance be ongoing?

• What are your current personnel needs?

• What are your plans for hiring and training personnel?

• What salaries, benefits, vacations, and holidays will you offer?

• If a franchise, will these issues be covered in the management package the franchiser will provide?

• How will you attract quality employees?

• How can you keep employees happy and productive?

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

If a franchise, the operating procedures, manuals, and materials devised by the franchiser should be included in this section of the business plan. If they are too bulky, simply list them by title and refer the reader to their location. Lenders will consider the strength of the franchiser as part of your management capabilities. Study these documents carefully when writing your business plan and be sure to incorporate the important highlights. The franchiser should assist you with management training and ongoing management support.

Your Key Personnel

As the owner/operator of a small hot dog stand, you will probably hold all the key positions in your company — owner, employee, accountant, personnel director. If your business is a solo operation, you will be telling the reader what makes you capable of filling these roles.

If your food service establishment is significantly larger, you will have a variety of key personnel to share the responsibility of daily operations, decision-making, and supervision of people and things. Here is where you will discuss the skills and expertise your key personnel bring to your business. For example, if you want to feature rich, elaborate European-style pastries, then your pastry chef’s talents and experience are of great importance.

Key personnel in your restaurant could be:

• Operations Manager

• Head Chef

• Maitre d’

• Bookkeeper

• Partner

• Pastry Chef

• Wine Steward

• Catering Salesperson

• Banquet Manager

• Head Bartender

• Human Resources Manager

Outside Support

An owner or manager need not handle all of the restaurant’s fiscal and managerial responsibilities. Outside consultants and advisors are a great way to enhance your management resources. Your accountant, lawyer, insurance broker, ad agency, PR firm, remodeling contractor, food service consultants, real estate broker, restaurant equipment salesperson, and suppliers can all add depth to your management capabilities.

Management Philosophy

Your management style indicates how you make decisions, how you delegate, and how you interact with personnel. Do not say, “I am an easy boss to get along with;” talk about your team-building philosophy or other work ethics that support your mission statement.

Organizational Chart

Depending upon the size of your organization, you can either include a chart or just describe who will be reporting to whom. Organizational or flow charts can be created using the Chart/Diagram functions of Microsoft Word. Charts and diagrams can also be created in PowerPoint and Excel.

THE NEXT THREE BIG SECTIONS

The next three sections of your plan — Marketing, Financial Data, and Feasibility Study — are the most detailed and complex. The marketing section is a plan within a plan. Marketing plans can be created separately for internal purposes instead of a full business plan. The information provided in your financial section shows your ability to pay for your business requirements and make a profit. Your feasibility study is your report on the ability to accomplish your restaurant’s economic goals. I will discuss this later in this chapter.

Coming to a Conclusion

Your conclusion is not just the end of your written business plan. It is a recap of the points you have made that prove your plan to be viable and profitable. Your conclusion is also your opportunity to ask for what you want and tell them why.

I am seeking an additional $50,000 in loans to complete the renovation of the historical Adams building. This sum represents 15 percent of the funds needed for this project and would provide Provencal with six additional tables.

Support Documents

This section includes various personal financial documents, legal documents and other items that support your statements within the plan. Examples are listed below. You may have other documents that you feel will give your lender or investor additional information of importance.

• Personal tax returns of the principals (owners) for the last three years.

• Business tax returns for the last three years (if you are already operational).

• Personal financial statements for each principal detailing your assets and liabilities.

• Copy of franchise contracts and documents supplied by the franchiser (if applicable).

• Copy of proposed lease or purchase agreement for building space and/or land.

• Copy of licenses and other legal documents.

• Copies of résumés of all principals.

• Copies of résumés of key employees.

• Copies of letters of intent from suppliers, etc.

Note: Never attach originals unless they can be easily reproduced.

WRITING A FEASIBILITY ANALYSIS

Feasibility is the likelihood that something can be carried out or achieved. A feasibility study covers the physical, emotional, financial, and market needs of your business idea and answers the big question: Should I start (or expand) a food service business? Many aspects of a feasibility study and analysis overlap with your business plan; however, they have different functions. Your feasibility study is your confirmation that your idea has sufficient merit to create your business plan — with the emphasis on planning. Think of a feasibility analysis as an exploration of your ideas and your business plan as a plan for action.

Your restaurant’s study is a critical decision-making tool for you, your partners, and your lender. The analysis can be a financial lifesaver allowing you to revise your vision and improve its potential for success before you invest your financial future.

After reading this chapter, you may decide that your first step should be to conduct a feasibility study, as much of the information gathered for the feasibility analysis can be used to write your formal business plan.

Start by reading over your plan, looking at your projected numbers, and examining your self-determination. Before putting anything on paper in this section, you will need to determine if your restaurant idea is financially, physically, and emotionally achievable in the real world. It is important to be honest with yourself; slanting the outcome towards profitability means that you are not facing business realities — not all ideas are money makers and not everyone is cut out to be an entrepreneur.

• Can it be profitable?

• Will people come?

• Do I have the desire to be successful?

• Am I willing to work hard for little pay?

• Do I have sufficient financial resources to sustain my family and business until I become profitable?

If the answers to these questions are yes, you are ready to create your written feasibility analysis.

PREPARING YOUR ANALYSIS

Your analysis must be based upon thorough research and fact-based assumptions. As you research the categories below, think about the questions people will ask you before deciding to loan you money, invest in your ideas, become a partner, or accept a job.

Your feasibility analysis should give you a clear picture of your:

• Needs — Must-haves that are the foundation of your concept and success.

• Wants — Desirable elements that will make life easier, increase profits, or save money.

• Wishes — Features that you would love to have but are not important to your launch or short- term ability to grow

Your analysis will cover your:

• Concept — Your theme, service style, menu, customer needs, and competition.

• Location — Its convenience, accessibility, visibility, and proximity to your customer base.

• Execution — How you will make it real.

• Financing Needs — What will it cost to start or grow a profitable restaurant?

CONCEPT ANALYSIS

In reviewing the potential of your concept, you will be asking and answering a variety of quantitative questions. Are the numbers there to support your idea? Is your community struggling economically? Do dining trends support your growth assumptions?

In analyzing the feasibility of your concept, you will be reviewing food service industry statistics, local economic conditions, community growth potential, customer demographics, and consumer patterns.

Look at the data you have gathered to determine:

• The meals people eat when dining out. Do potential patrons only eat breakfast out on weekends? Are competitors busiest during lunch hours? Are locals interested in lingering after work?

• Traffic patterns around your location. Are there natural commuting patterns that go past your restaurant? Are you located in a destination spot that will bring people to your door? Is there easy access or must they do a U-turn to get to you?

• The economic health of your community. Everyone needs to eat, but dining out is a discretionary activity directly affected by economic ups and downs. Is your community growing? Are businesses shutting down?

• Seasonal conditions. Do you have a seasonal population fluctuation? Are you near a tourist destination? Will people be interested in heavy, comfort food during your long, hot summer months?

• Spending history and patterns. Are locals spending their dining-out dollars at fast-food joints or upscale dinner houses? Can your potential customers afford your offerings?

The key question to answer is, “Does my restaurant concept fit with what I know about my community, customers, and competitors?” For example, if you are located in a bedroom community where people drive by on their way out of town and never stop for breakfast, would a pancake house be a wise venture?

Going Into Business Checklist
(This form can be used to tally pluses and minuses or to make comments.)
FACTORS	FROM SCRATCH	BUY EXISTING BUSINESS	FRANCHISE
Time
Availability
Launch Time (planning to opening)
Financial
Cost
Available Financing
Investors
Personal Worth Requirements
Total Indebtedness
Break-Even Point
Royalties & Fees
Purchasing Restrictions
Current Profitability
Intangibles
Goodwill
Historical Recognition
Known vs. Unknown (obstacles to success or existing profitability)
Reputation
Convenience
Exclusivity
Assets
Location
Facility
Equipment
Existing Staff
Customer Base
Owner
Independence
Business Experience
Food Service Experience
Management Experience
Owner Expectations
Outside Expectations
Training
Support
Market share
Marketing Support
Product Mix
Competition
Customer Needs
OTHER

THE MARKETING PLAN

The marketing plan is the first additional plan that needs to be created. We will discuss the marketing plan, the management plan, and the financial plan throughout the remainder of this chapter.

Marketing plays a vital role in successful business ventures. How well you market your business 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, and 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 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.

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

• Are your markets growing? Steady? Declining?

• Is your market share growing? Steady? Declining?

• If a franchise, how is your market segmented?

• Are your markets large enough to expand?

• How will you attract, hold, and increase your market share? If a franchise, will the franchisor provide assistance in this area? How will you promote your sales?

• What pricing strategy have you devised?

COMPETITION

Competition is a way of life. We compete for jobs, promotions, scholarships, in sports, and in almost every aspect of our 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:

• Who are your five nearest direct competitors?

• Who are your indirect competitors?

• How is their business: Steady? Increasing? Decreasing?

• What have you learned from their operations? From their advertising?

• What are their strengths and weaknesses?

• How does their menu 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? How much do they reduce prices for sales? Using this technique can help you better understand your competitors and how they operate their businesses.

PRICING AND SALES

Your pricing strategy is another marketing technique 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 considerations are:

• Menu cost and pricing

• Competitive position

• Pricing below competition

• Pricing above competition

• Price lining

• Multiple pricing

• Service components

• Material costs

• Labor costs

• Overhead costs

The keys to success are having a well-planned strategy, establishing your policies, and constantly monitoring 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 margins.

ADVERTISING AND PUBLIC RELATIONS

How you advertise and promote your restaurant 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 in other areas of the business. Advertising and promotions are the lifeline of a business and should be treated as such. I have devoted a whole chapter to marketing and promoting your restaurant.

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. 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.

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.

People are a business’s most valuable resources. You will discover that employees and staff play an important role in the total operation of your business. It is imperative that you know the skills you do and do not possess. You will have to hire personnel to supply the skills that you lack, making them part of the team. Keep them informed of, and get their feedback regarding, changes. Employees have ideas that can lead to new market areas, innovations to existing products or services, or new product lines or services that can improve your overall competitiveness. Your management plan should answer these 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?

• 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 and 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 her expertise and develop a management plan that will ensure the success of your franchise and satisfy the needs and expectations of employees, as well as those of the franchisor.

THE FINANCIAL PLAN

Sound financial management is one of the best ways for your business to remain profitable and solvent. How well finances are managed is the cornerstone of every successful business venture. Each year thousands of businesses fail because of poor financial management. As a business owner, 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 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 include such one-time-only costs as major equipment, utility deposits, and down payments.

START-UP BUDGET

The start-up budget should allow for these expenses:

• Personnel (costs prior to opening)

• Legal/Professional fees

• Occupancy

• Licenses/Permits

• Equipment

• Insurance

• Supplies

• Advertising/Promotions

• Salaries/Wages

• Accounting

• Income

• Utilities

• Payroll expenses

OPERATING BUDGET

An operating budget is prepared when you are ready to open for business. The operating budget will reflect your priorities in spending your money, the expenses you will incur, and meeting those expenses (income). Your operating budget should include money to cover the first three to six months of operation. It should allow for the following expenses:

• Personnel

• Insurance

• Rent

• Depreciation

• Loan payments

• Advertising/Promotions

• Legal/Accounting

• Miscellaneous expenses

• Supplies

• Payroll expenses

• Salaries/Wages

• Utilities

• Taxes

• Repairs/Maintenance

• Dues/Subscriptions/Membership Fees

The financial section of your business plan should include any loan applications you have 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 are generally addressed in this section of the business plan. Have your financial advisor develop these systems and assist you in developing this section of your business plan. If a franchise, the franchisor may stipulate in the franchise contract the type of accounting and inventory systems you may use. She should have a system already intact for you to adopt. You will need a thorough understanding of each segment and how it operates.

The following questions will help determine the 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 franchise?

• 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 you use? Is it a single entry or dual entry system?

• What will your sales and profit goals for the coming year be? If a franchise, will the franchisor set your sales and profit goals? Or will 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.

For additional business plan information, I recommend Opening a Restaurant or Other Food Business Starter Kit: How to Prepare a Restaurant Business Plan and Feasibility Study (Item # ORF-02) and How to Write a Great Business Plan for Your Small Business in 60 Minutes or Less (Item # GBP-01). Both titles are available from Atlantic Publishing, www.atlantic-pub.com.

Table of Contents