Writing an Effective Business Plan

Like many studio owners, Virginia Davis, owner of the Virginia School of Dance in Madison, Wisconsin, considered a business plan just one more piece of paperwork to complete in order to receive a bank loan to pay for an addition to her building. What she didn’t realize was that this map of business dreams was in fact the first step toward success. She was crystallizing her business ideas, formulating a profit strategy and making those thoughts tangible by committing them to paper.

Whether you’re thinking of opening your first studio or, like Davis, are an established owner looking to expand, developing a solid business plan is a critical task. Not only do banks require them before approving business loans, but by defining your goals and outlining how you will reach them, you are also creating a plan for success that you can rely on and refer back to time and again to maintain your business focus.

If you’ve never created a business plan before, there’s no need to feel intimidated. Simply read on to acquaint yourself with the basic elements.

Every business plan comprises four fundamental components: a description of what your studio business is actually about; a detailed market analysis that includes the size of your potential student base and how you plan to attract those students to your studio; financial projections; and an executive summary.

The description of your business and outline of operations are the most straightforward: What services will your studio provide? What needs will it fill, and how do you plan to fulfill them?

When writing the marketing portion, Allan Hauff, director of the Missouri Small Business Assistance Center in St. Louis, Missouri, counsels prospective studio owners to think carefully about their target students. Saying you will cater to dancers is not specific enough. Will you focus on classical ballet? Will you include jazz, tap or hip hop? Will you offer yoga or Pilates in addition to dance technique?

Marketing strategy is crucial, adds Keith Yurgosky, a manager and business counselor at The University of Scranton’s Small Business Development Center in Scranton, Pennsylvania. “You can have the best [teachers] in the world but it won’t matter if you do not know how to tell people about them,” he says.

The most complicated piece of the business plan is the financial projections. A well thought-out plan considers all the bills that will need to be paid—and will be as beneficial to you as it is informative to the bank. “If you plan it all out in advance, you shouldn’t have any hidden expenses pop up,” Yurgosky says.

To examine the finances of a business that is yet to open, banks expect a pro forma balance sheet and income statement projected out over three years, along with a break-even analysis. This analysis tells the bank how the loan will be repaid.

As you review the numbers, try to anticipate what your bank will ask, advises Peri Pakroo, a New Mexico-based business communications consultant and author of The Small Business Start-Up Kit. “Does your profit/loss forecast look realistic?” she asks. “They’ll want to see that you at least have a reasonable plan for making a profit.”

The pro forma statements require lots of research, according to Hauff. For example, when converting an existing building into a dance studio, thoroughly investigate the different flooring options available and think through the potential costs of absolutely everything you plan to purchase, from mirrors and barres to lobby furniture. “Every cost of the business needs to be accounted for, and the income projections must be realistic,” Hauff says.

Karen Kern did not write a formal business plan when she relocated her studio, Karen’s School of Dance in Highland, Michigan, nine years ago, but she does recommend doing the necessary research to anticipate all costs. She ended up having to take out a second loan to cover major expenses she didn’t foresee. “When you purchase a building, there are a lot of unexpected things that come up, such as plumbing problems,” Kern says. “You have to be prepared for the unexpected.”

As a final page of your business plan, include an executive summary. One of the last paragraphs in the summary should address how much money is required to launch the new enterprise, how much equity you, the entrepreneur, will invest personally and how much money must be borrowed. “That’s what lenders are going to read first,” Hauff says. “They want a short synopsis of what the business is about, what you are planning to do with it and how much money you will need.”

Keep in mind that a crucial point for bankers is how much of your own money you are willing to risk. “The bank wants to know how much you are going to put in the business,” Hauff says. “The magic number is 20 percent or more [of the total cost]. Most people don’t know that. They think, ‘Here’s my business plan. I’m going to get money from the bank.’ It doesn’t work that way.”

Your business plan should answer all of the questions a banker might have about your business, advises Yurgosky. If it doesn’t, the oversight could result in a longer wait for a loan decision, since at many banking institutions the loan committee meets only monthly. “You don’t get to present your plan to a bank. You present it to a loan officer who presents it to the loan committee on your behalf,” he says. “If you don’t answer all of the questions in your business plan, you don’t get the loan. It will get tabled or possibly rejected.”

There are resources available to help you with the process, including small business centers located at colleges throughout the country. So don’t be embarrassed to seek help if you need it. A lot of entrepreneurs find it difficult “to put pencil to paper” adds Hauff. “They are technical experts, very good at [selling] services. But when you say, ‘I need you to give me your business ideas on paper so we can present them to a lender,’ they have a lot of difficulty with that.”

Pakroo insists that if you’re smart enough to start a business, you shouldn’t fear tackling a business plan. Just think of it as a roadmap to success. Remember: The goal is not simply to open a studio, but to keep it open for years to come.