Components of a Business Plan
Components of a Business Plan The format and contents of a business plan is something that has been refined many, many times over the years but there are some key components to make your plan turn into a successful business. When creating a business plan it’s important to make sure that when someone is reading they can understand and interpret your vision for the business and feel the passion you feel about starting your own business.
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To assure understanding between you and your reader you must make sure they understand where your business stands currently, where it will stand in the future and how it is your going to get to that point in the future. With that said it’s also important to make sure you cover all your bases when constructing your business plan so there are no questions left unanswered after one has concluded reading. Although it is typically one of the first pages in the plan, the Table of Contents should be one of the last constructed items in the plan.
It should be a brief outline or overview of the contents of your business plan and should also contain any related tables or appendixes that may be useful in the projection or explanation of the business plan. The amount of information in the appendices will vary from plan to plan depending of the type of industry you are looking to get involved in but none the less there will almost always be some sort of pertinent information that can and will be located here.
Like the table of contents, the Executive Summary is another item in the plan that will come early in the order of the plan but should also be one of the last items constructed when building the business plan. Similar to the preface of a book, the business plan is an overall introduction to the business plan. There is a few things the summary should accomplish and the first is get the reader acquainted with the subject matter of the material you will be covering in the plan. Second, the summary should emphasize any strengths the entrepreneur wishes to make sure the reader is aware of.
Third, it should establish the market in which your business will be targeting and how you plan on reaching that target. Lastly, the summary should be engaging so that the reader wants to continue reading the rest of the plan. The last portion of the summary in many ways is the most important. Getting the reader excited about your idea for a business can have them wanting to know more and more about your plan and thus enticing them to continue reading. The first large section of the business plan will be a description of the business and will contain many parts.
This part of the plan lets the reader know how well you know your business in your own words and assure them that your business can and will be a successful one. Company Analysis and Services is a section that includes your personal qualifications to run your business, a history of your business or idea, and any past accomplishments associated with your business. In this section it’s important not to try to make your business out to be more than it really is but simply let the facts and numbers speak for themselves.
Any information given that can be backed up by solid evidence or numbers goes a long way to validate your business or idea. Giving the reader proven reason to believe in your business or idea can really go a long way to help get support from them. Industry or market overview and target customers could be one of the most important portions of your business plan. With this section, research and information is more valuable than you could ever imagine.
Depending on the type of business you are looking to establish, this section is usually divided into two sections. First being the Industry or Market Overview. Understanding the industry your entering is very important in determining the ways of doing business and understanding what it is you can do to best serve your customers. Knowing your target customers is the second part of this section and can make or break the success of your business. It would be hard to sell product or service when your aiming it at the wrong consumers.
Doing the research and talking to people in the consumer sector can tell u a lot about where your company needs to be, what you need to offer, and how to go about offering it. With today’s businesses centered around the consumer, knowing what their needs, wants, and tendencies are makes doing business easier. One of the most obvious necessary components of the plan is doing a competitive analysis. If you can know who your competition is in the market and how they fail to satisfy their customers, you’re on the fast track to establishing a niche in the market.
Convincing your reader that not only can you be competitive in the industry your looking to enter, but that there is a clear place for you in that market where your competition is falling short can help the reader feel more and more comfortable with the future success of your business. There is no need to talk negatively about your competition in this section but rather your want to take an outside, objective look at their businesses and gain information that can help you be successful in your own business.
This also can help your reader feel more confident about you entering an industry that is currently available in your area. The marketing strategy is the portion of the plan where you will be going over the four P’s of marketing: Price, Place, Product and Promotion. Informing the reader how you plan on positioning your business in the market place gives them an idea of where you want your business to be. Also including how you plan to retain or create repeat purchases from your customer can show the reader that you’re not just worried about getting the customer in the door, you want to keep them coming back.
Be sure to thoroughly go through each of the four P’s of marketing and present any data to support your ideas. Although many times when a business is struggling marketing can be one of the first things to get cut out, it must be known that besides the product itself, it’s the most important part of keep the business alive. Showing the reader that you have a strong hold on the marketing strategy of your business gives them added confidence that you and your business can become and remain successful. Facility Location and Operations can make or break your business.
A lot of small business owners open their business in or near their home and while this makes running the business quite convenient to you the owner it doesn’t necessarily mean it’s good for your business. Especially in a distribution or retail type of business location can be a critical component and requires an extensive amount of research to assure you are in the right place. Explaining your reasoning for your location selection, whether it be cost related, customer related, or for ease of operation can make sure your reader understands your selection.
The phrase we have all heard coined by real estate companies, “Location, Locations, Locations” holds true in business at well. Placing yourself where you can best serve the consumer or operate most efficiently can become the be all or end all of business. Making your location attractive and providing your reader with data to elevate that attraction gives your reader that needed excitement as the read through your business plan. Managing your business will be the difference between sinking or swimming in the world of business.
Like all sports teams try to do every season, you need to be able to build a winning team to ensure your success. Showing your reader that your team has been constructed with careful deliberation and their strengths and weaknesses balance out can inspire them to back your venture. Including short resumes of your business team can go a long way in supporting your decision to bring them add them to the group. Readers of your plan want to have confidence in you as an entrepreneur but equally important is their confidence in the team you assemble to run the business.
Including and legal counseling, accountants, insurance brokers, or advertising agencies can show your readers that this isn’t just you starting from scratch in your garage but that you are really building a solid foundation for success. A winning team involves everyone from the owner the lowest on the totem pole and showing that your assembled the right people on that team instills confidence in your business. Exit Strategy is something investors look for when reading a business plan.
They will want to know your intentions in the business and how long you intend to stick with it. If you decide get out of the industry how do plan to do so while making sure you keep the business running. Although it may seem strange to have a plan to leave your business when you may just be starting it but investors do want to know your plans for the long term. Your exit plans must be clear no just to the reader but also to yourself because it can influence or even dictate the way you will operate your business.
The second large section of your business plan is the financials. This is a big one when creating a portrayal of your future business. Showing the reader that you can financially keep your business afloat will go a long way into gaining their support. Lenders aren’t going to be swayed by your passion they want some hard evidence in numbers that shows you can be successful. You want to make sure your numbers add up and you can confirm where each penny is going.
The best reaction is to see the investor be impressed by the numbers you show them. Noting your reasoning for your projections of income and cash flow is good backing to show that you did your homework on coming up with the numbers you did. Projecting income can be difficult because there are variables outside your control that can have a major impact. But it isn’t something to be afraid of doing because with the right research you can give yourself and your reader a pretty good idea of what kind of money you can be making.
Looking ahead to the first years of your business is important to your reader but just as important is your projections for five years or more into the future. Showing the reader that you can be profitable and stay that way can ultimately be the deciding factor whether they want to be involved or not in your business, regardless how great your idea sounded in the beginning of the plan. The balance sheet will show the state of your finances at a point in time. It will give the reader an idea of where your money has come from, where its being spent, and how liquid are your assets.
This information can help the reader evaluate your ability to manage your business. If notes are needed to explain some of the information then they can be added but in most circumstances those looking at your balance sheet will be some sort of professional with experience in that department. That covers the major components of the business plan. As noted at the start there can be more or even a little less put into the plan but overall most of these subjects need to be covered in order for the plan to be a success.
Not to be confused, a great business plan doesn’t always equal success but it is a great start to establishing a good foundation for the way you want to operate. To conclude I will discuss some of the common mistakes associated with most small business plans and some myths associated with starting a small business as listed in the Small Business text. Probably the most common mistake made when constructing your business plan is the fact that a lot of times they are simply to vague and haven’t included enough research.
Make no mistake about it starting your own business is not easy and making a plan for doing so shouldn’t be easy either. A lot of work needs to go into making the plan. Another issue people have is that they want so badly to succeed and be the next Michael Dell that they are just too overly optimistic in their financial thoughts and goals with their business. Over projecting is something a lot of entrepreneurs do unknowingly due to their ambitions. There are occasions where someone will copy another business plan while implementing their own ideas.
This causes issues because no two businesses are identical and your must tailor your plan to fit your business idea. What needs to be included in a service business plan might not apply what so ever to a manufacturing/distribution business plan. This is something that should be kept in mind when putting it all together. Just because its cheap doesn’t make it better. This is something that entrepreneurs attempt to center themselves around rather than producing a quality product that fills a gap in the market place.
Instead of opening the pizza shop that’s just cheaper than the next guy why not open a pizza shop that makes it differently or offers a different style of food, or even a different setting for service. With that said, finding a niche or a gap in the market works much better for the small business than trying to be cheaper than the competition. Finally, building a small business can be exciting and give you the life you always wanted. Starting off those dreams with a great plan for your business is just the foundation you need to be successful out of the gate and stay that way.