As you begin a new enterprise, you can find a seemingly endless variety of problems to address and questions to answer. Such a situation could quickly overwhelm you if you don’t have a plan. However, by the time you have worked through all the steps of the business plan, you will have answers. You will have to love for the business rather than being “in love” with the idea of the business and having unrealistic expectations. The order of the components of a plan can vary, but there are elements common to all.
Components of a Business Plan
- Cover Page and Table of Contents
Begin the plan as you intend to continue it. The cover page should be professional, neat, and attractive. It should provide the name of the business and the principals, the date, contact information, and any confidentiality statement. The table of contents should be sufficiently detailed so an investor or manager can easily find a section, but not so detailed that it takes up pages of the plan.
- Executive Summary – A snapshot of Your Business
The executive summary has to be compelling and comprehensive. It is the “hook” that either reels in the potential investors or loses their attention.
It should answer the who, what, when, why and how questions for the business. Who will manage the business? What will it do and what is the owner asking for in the plan? When will the proposed plan be implemented? How will the business succeed?
This section should be written last and should be limited to one or two pages. Done well, the reader will have a “lightbulb” moment and be eager to read the rest of the plan.
- Mission, Vision, Culture – Your Dreams for the Organization
Each company has the opportunity to create its own, unique mission, vision, and culture.
The mission of your business, expressed in a mission statement, a short statement clarifying what you are trying to do, and it can provide direction and motivation to those who are involved in the business. A clearly stated mission statement can also be a guide for every decision you make.
The vision for your business is broader and more comprehensive, it describes what you want your organization to become. It is typically shorter than the mission statement, with a loftier perspective.
The culture: You can build a culture for your organization by making the beliefs, values, and behavioral norms explicit and intentional.
- Company Description – Background and Track Record
If your company is already established, there will be a history to share with the reader of the plan. The company description does not need to be long. It should simply provide the background for understanding the rest of the plan. It should include summary information about the company’s founding, its progress, and its financial success.
If this is a start-up, this section should describe briefly the background story of the company, explaining what you have done thus far and why you have done it. The legal form of the businesses whether it’s a sole proprietorship, corporation, LLC, partnership, should also be noted.
- Opportunity Analysis and Research – Test Ideas
The opportunity analysis and research section will provide the credible data and information to determine and demonstrate the market viability of your proposed business on paper, and perhaps in the field, before you start.
A well-researched opportunity analysis can help to move your business to the head of the line for financing.
5.1. Industry Analysis
The industry analysis provides the broad context for your business plan. It identifies factors such as industry definition, industry size and growth or decline, product and industry life cycle, and any current or anticipated legal or regulatory concerns.
Determining industry structure—including geographic distribution, firm size, concentration of power, and rates of failure—is also important. This is also a place to discuss how you will track industry on an ongoing basis.
5.2. Environmental Analysis
v The environmental analysis addresses the roles of the community, region, nation, world in your business. Changing technologies, economic conditions, demographic and family changes may radically alter your plans and mean adjustments for your business.
v The opportunity analysis should include a proof of market investigation that will provide evidence of a market opportunity for your organization. This should identify market size, both in terms of dollars/SSP and units.
There have to be enough customers who will purchase your products or services in sufficient quantity at a high enough price and often enough for your business to be sustainable.
v Target market segments, these are groups that are defined by common factors such as demographics, psycho-graphics, age, or geography. You can discuss the size of your target market and market share that’s attainable.
5.3. Competitive Analysis
- A competitive analysis should compare your organization with several direct and indirect competitors by name, and include comparisons that would be meaningful to customers.
- The format of competitive analysis can vary significantly, but it must make clear where your competitive strengths and weaknesses are, and where there are holes in the competitors’ businesses.
- Factors to compare may include, but would not be limited to: location, product selection, market share, and product or service quality experience, advertising, pricing, finances, capacity, hours, size and skill of workforce, and reputation.
- Marketing Strategy and Plan – Reaching Customers
A description of how you will reach your customers and your anticipated sales volume brings the opportunity and research discussion to the bottom line of sales.
The design of your marketing mix will be the combination of the four factors that form your competitive advantage, also known as core competency—product, price, promotion, and place.
- Products/services: the product or service should meet or create a consumer need.
- The packaging is also part of the product.
- The product has to be priced low enough so the target customers will buy it and high enough for the business to make a profit. Priced should reflect your vision, strategy, and policy.
- Indicate any differences from the existing competition that may justify your pricing strategy. These might include quality, credit terms, warranty type and length, service, and innovativeness.
- Promotion consists of advertising, publicity, and other promotional devices such as discount coupons or giveaways.
- Publicity is free, while advertising is purchased.
- The description of your promotional plans should be specific with respect to the methods used, the time line for implementation, and the budget.
Place is the venue from which you will sell and distribute your product. Locate your selling place where consumers in your target market do their shopping.
- Management and Operations – Making the Plan Happen
The people you hire and processes that you plan to implement will be an essential part of your business plan. This is where the “rubber meets the road” in the planning process.
7.1. Management Team
- The team must be composed of an effective balance of members with technical expertise (i.e., engineering, marketing, accounting, operations), briefly discuss the current and proposed management team and reference their resumes in the appendices.
7.2. Physical Location
- Describe the desired physical location(s) of the organization and the rationale. Local wage rates, community support, “business-friendly” laws and courts, tax rates and structures, school systems, overall quality of life, and environment are factors to discuss.
- In addition, geographic proximity to customer and/or suppliers or distributors may be a critical location factor.
- The facilities that are required for the success of your enterprise should be discussed in sufficient detail. You should describe the building according to its type and size and equipment should be specified and “costed out” (details can be included in the appendices). If you know that you require production, warehousing, showroom, and office space, you can describe each.
7.4. Production Methods and Inventory Control Systems, and Quality Assurance
The business plan is an opportunity to set inventory control systems, production processes, and quality assurance methods. These methods vary considerably, but the identification of your choices and methods of measurement is essential.
- Financial Analysis and Projections – translating Action into Money
The financial section of the business plan will be the numeric representation of all that you wrote previously. This section should demonstrate organizational viability in financial terms. Commercial lenders in particulars will often go directly from reading the executive summary to the financials before reading anything else. If the numbers make sense they may look at the rest of the plan. If not, your plan may well land in the trash heap. Your financial estimates should be realistic as you can make them.
8.1. Sources and Use of Capital
This section is the numeric representation of the start-up costs, plus a verbal description of capital requirements. It states where you expect to obtain your financial support and how you will use the funds. When securing bank or community development financing, your lender may require you to “draw down” funds in accordance with your list of costs. It is essential to make the list as complete and accurate as possible.
8.2. Cash Flow Projection
The cash flow statement shows cash receipts less cash disbursements over a period of time. Creating your cash flow projections for 3 years will bring financial potential and risks into clear focus for you and your stakeholders.
8.3. Balance Sheet Projections
Your three years of projected balance sheets will provide snapshots of your business at specific points in time, such as the last day of the month, quarter, or year. Balance sheets show the business’s assets (what you own), these statements provide insights into your financing strategy and overall business health.
8.4. Income Statement
An income statement or profit and loss statement (P&L) summarizes income and expense activity over a specified period, such as a month, quarter, or year, and shows net profit or loss.
8.5. Break-even Analysis
This calculation will determine your organization’s break-even point, that is, when the volume of sales exactly covers the fixed costs. Calculating the break-even point will help demonstrate whether there is a viable market for your business.
8.6. Risks and Assumptions
All business takes risks, and make their projections based on assumptions. In order for your plan to be realistic, you will need to state your assumptions and known risks explicitly. You will have done some of this in your SWOT analysis.
- Exit Plan – The Ask and the Return
The exit strategy is the way in which you and/or your investors expect to leave the company someday, in a planned and orderly way. For investors, this might mean a buyout plan for their equity or an initial public offering (IPO) when the company “goes public,” that is, listed on the stock exchange.
It could mean a sale of the business when certain benchmarks are met or at a predetermined point in time. It could mean having you give up day-to-day operations according to a succession plan. Lenders and investors will want to know how they will recoup their investment and earn enough profit to warrant the risk they are taking.
- Any business plan is only as strong as its implementation schedule. Therefore, the schedule or timetable of milestones (goals) that you include will be important to your business and your stakeholders. By establishing realistic deadlines for the completion of activities, you demonstrate knowledge and understanding of the necessary tasks.
- The appendices will provide you with an opportunity to strengthen your business plan with examples and details that are not critical for inclusion in the main portions. This is the place to add management resumes, sample promotional materials, and illustrations or diagrams of products and packaging. In same case, the detailed financial projections appear in the appendices. Each appendix should be numbered and placed in the plan according to the order of reference in the text.