Writing a Business Plan, Part V – Development and Production
|Prepared By: Melissa C. Marsh, Los Angeles Business Attorney
Written: March 2009
A Business Plan Should Explain Your Product Development
In this section of the business plan, it is important to familiarize the reader with how your services are delivered, or if a product is involved, then the status of your product development, the production process, the cost of development, and the labor requirements. This section should also reference three financial forms setting forth your projected operating expenses, capital requirements, and cost of goods for a period of three (3) years.
Readers of your business plan, especially potential investors, will scrutinize your development plan to determine if you have thoroughly researched and analyzed all facets of the development of your product or service. If the company is planning to market a service, the writer should describe the current status of the service.
A service company should detail whether their intellectual property has been properly protected, if office space has been obtained, if equipment and supplies have been purchased or are currently being leased, if market research has been or is being conducted, whether brochures have been designed, and if so has there been a sample mailing, etc...
If the company is marketing a product, the writer should describe the current status of the product development and, if incomplete, what remains to make the product ready for market. The writer should then attach a schedule detailing when this work will be completed.
Production Process - Delivery of the Service
The next step depends on whether the writer is marketing a product or a service. If a product is involved, the writer explain each stage of the product development and production process in detail, from the inception of the idea to when it can be sold. The writer should also set forth his or her ideas as to whether you will buy or make all components necessary for the production of your product or service (e.g. make it in-house, or outsource it). If a service is involved, then the writer should provide a detailed description of how the service will be provided to the intended customer. The writer should then justify the reasons for choosing a geographic location for the production of the products or the establishment of the service center (e.g. savings in rent or lease, convenience to suppliers, proximity to transportation, availability of skilled, affordable labor, etc...).
Production and Development Budget
Once the development process and production process has been fully explained, the writer should then present and discuss a design and development budget. If a product is involved, the budget should include the cost of the design of a prototype as well as the expense to take it into production. Do not underestimate the costs - include labor, materials, consulting fees, trademarks, copyrights, patents, as well as the cost of professionals such as accountants and attorneys. Provide a contingency plan in the event problems such as delays, a failure to meet industry standards, or mistakes occur. While this subsection may appear to be more important for a product company, service businesses also have development expenses such as consulting services, training for principals, and the preparation of materials.
The final subsection to this portion of your business plan, should reference three financial spreadsheets spanning a three year period to serve as a foundation for the Financials section of your plan. These financial spreadsheets should include: (1) operating expenses, (2) capital requirements, and (3) cost of goods. Formulation of these spreadsheets may require the aid of an accountant, or other business consultant.
Go to Writing a Business Plan, Part VI – Sales and Marketing.
© 2009 Melissa C. Marsh. All Rights Reserved.