Next Article: Business Plan, Part 2 (The Executive Summary)
Back to: CREATE A BUSINESS PLAN
The business plan is a detailed roadmap for your business. It is a non-static, living, breathing document that should be updated regularly to reflect the course and strategy of the business. The business plan provides context and gives a holistic view of the entire business activity.
The business plan is both a planning tool for the entrepreneur and a tool for interacting with outside parties (particularly financiers and investors). There is no single model for a business plan. In truth, the true value of the business plan is unique to the individual entrepreneur. It allows for constant reflection on the big picture, which can become obfuscated in the daily grind of building the business.
A good business plan does not happen over night and is never complete. Remember, this is a living, breathing document that should provide a guiding light for the business at its current stage of development. As the business grows and develops, so should the business plan.
Having all of the components of your business in one place will allow you to make assessments about the process of building the business and ascertain the overall value proposition. Continue to re-think your concepts, assumptions, projections, etc. It will only help to solidify your business going forward.
Business Plan Components
The business plan will generally contain a detailed explanation of the product, service, or concept, the market, the organizational and management plan, the management team, financial position, financial projections for 3-5 years out, a marketing plan, and any other elements that would serve to adequately explain your business. Below we provide an overview of the individual components of the business plan.
Business Plan The Table of Contents
This should include the major sections of the business plan. The key is that (like a resume) you want all of the components to fit in an organized manner on one page. We use the resume analogy because the table of contents is a snapshot-style outline of the business plan. A well-planned table of contents goes a long way in showing the depth and development of the business components.
Business Plan The Executive Summary
This section summarizes the entirety of the business plan. It presents a concise recitation of the core function and attributes of your business. It should possess the same voice or the same tone as the body of the business plan. Often the executive summary is the only portion of a business plan that a potential investor will be willing to read. If this portion does not sufficiently explain the business objective, the value proposition to customers, and the potential for the business within the current market, the investor will discard the plan without reading any further.
General Description of Your Product, Service, Idea or Concept
As with any good plan, the strength of the plan depends entirely on how well the planner understands the initial concept. Here you will describe your product or service and the need or want that it satisfies for customers. Your product, service, or idea must create some type of value for customers. What hurt, pain, need, or want does the product or service solve. Even if the value proposition is intuitive, this section of the business plan should articulate it very well. Remember, at this point all we know is what the product, service, or idea is. In some cases a single product, service, or idea could be complex and have multiple value propositions that are not obvious or apparent from a general understanding of the business concept. Make sure your value proposition is stated in a manner that a CEO and your grandmother will understand.
⁃ Note: The General description of the product, service, or idea should encapsulate the first 20 seconds of your “elevator pitch”. If you are unfamiliar with the elevator pitch, We encourage you to research the topic on YouTube.com.
A Market Analysis and Approach to Reach Customers
Now we move to the planning portion of the business plan. This section should outline your market analysis. This section is very broad. You can (and generally should) spend a lot of time developing this section. It includes the factors that helped you to decide to push forward with this venture or to revisit your product concept. Components in this section include: market size, segments, product or service pricing, demand, etc. We recommend doing some preliminary reading about the market analysis (visit wikipedia.com) to give you a background understanding of this process prior to beginning.
Competitive (Strategic) Analysis
The competitive analysis is often mixed with the market analysis; however, we recommend keeping it as a separate section. The purpose of the strategic analysis is to determine your competitive position in the market (SWOT analysis, Porter’s Five, or other strategic market analysis) and whether you will be able to compete. You will need to identify your primary competitors (both direct and indirect competitors) and explain how you will be successful in light of their presence in the market.
Business Marketing & Sales Plan
This section outlines the methods you will use to make customers aware of your product or service. It also includes how you go about reaching and consummating sales with customers or clients. Businesses providing great products or services often fail due to a lack of sales. Marketing drives sales, but it can be extremely difficult and expensive. You will want to explain in detail the methods you will use to both spread information about your business and acquire customers or clients. This should include methods (and justifications for those methods) that are best suited to your business and within the business’s budget.
Business Plan Operations (A Description of How Your Business Will Carry on Activity)
This is the “how to” section of the business plan that will explain how you are going to do what it is you do. You should give a step-by-step description of the activities that your business will undertake to deliver value to the customer. You should be detailed about your production efforts and requirements, inputs, outputs, logistics, suppliers, etc. This section can be very detailed and complicated. We definitely recommend maintaining this section as a separate, stand-alone document.
A Plan for how the Company will be Organized and the Management Structure
One of the main concerns for business owners and investors is, how will the business be structured? In this section you need to explain the following: Who will be in charge of different aspects of the business and how the different functions of the business will be organized? Will there be different teams or groups that carry on certain functions? You will need to explain anything that involves the owners, directors, and officers, including: who will be involved in the business, what role they will play, their responsibility, their authority, the ownership rights, etc. If you plan on using outside contractors (manufacturers, consultants, programmers, accountants, attorneys, etc.) explain where their services will fit into the organization.
The Financial Projections
This portion lays out the anticipated financial projections of the business moving forward. The financial projections generally consist of assumptions (revenues and expenses), income statement, cash flow statement, and balance sheet. Each of these documents demonstrates a different amount of information. The most important function of the financials, however, is to demonstrate the revenues and expenses (i.e., the income statement), and the flow of cash in and out of the business (i.e., the cash flow statement). Early in the business the financials will be very speculative and tenuous. A good practice is to prepare a worst case, conservative, and optimistic set of financials (particularly the income statement). You will continue to update these plans as the business develops and with every significant financial milestone.
Startup Expenses and Capitalization
Generally, the breakdown of startup expenses and use of working capital is designated in the financial assumptions. This information is then employed in the income and cash flow statements. In the event you are using the plan as a tool for acquiring outside equity (Angel Investment or Venture Capital) you will need to show the proposed ownership breakdown at the anticipated capital investment rounds. Investors will be concerned about how you are going to use their money and what their return on revenue will be. This will necessarily include the projected ownership interest of all involved parties at different points in the life of the business.
While the Financial plan is often the very last thing in the business plan, you may need to append other documents for reference. We caution against appending too many things that detract from the planning function of the overall business plan.
Read this section multiple times before proceeding. The overview and components of the business plan provide a snapshot of what goes into a completed business plan. You should have a holistic understanding of all plan components and the importance of each in order to fully internalize the specifics of each section. Also, understanding each section will help you identify the information that needs to be in each section and eliminate repetitive information.