Do you ever wonder what it really takes to succeed in business?
Is it having the most revolutionary business idea? Is it money? Is it timing? Is it the competence of your team?
All of the above are important, but one of the most important business success factors is:
Knowing what to do next.
Your business plan is what helps you know what to do next. A business plan is not just a way to obtain funding and court potential investors. It is also the blueprint and the foundation for any company. It sets the direction for the business, and establishes performance metrics as well as facilitates communication. A well-written business plan can also assist business owners in the evaluation of their company’s operations. And of course, business plans are standard if you are hoping to get any capital.
Lucky for you, I have outlined what I consider to be the essential components of any business plan, with details for success in each category. I have also provided a few helpful hints and tricks along the way, to give you a competitive edge in your business endeavors. By following this plan, you are sure to create a strong foundation for your company and end up with a clear plan for your business.
The Executive Summary
Let’s begin with the executive summary. Many argue that the executive summary is the most important piece of any business plan. This section will summarize why your business will succeed, including the current state of the business as well as your plans for the future. This is also the first real opportunity to engage a potential investor and interest them in your plan. This section should highlight the strongest points of your plan and should be featured prominently at the very beginning. This placement ensures you begin strong and demonstrate your confidence in your business’s ability to thrive.
Helpful hint: You may want to write this section last, as it should be an all-encompassing summary, and may be easier to piece together after you have given all other sections a great deal of thought.
Here are some key points to consider including in your executive summary.
For existing businesses:
- Information about the company – a key jumping-off point to introduce your reader to your business. Basic information such as when the company was founded, who the founders are/were and what their roles are/were, where you are located, and how many employees you currently have are all great pieces of information that your reader and a potential client would be interested to know about.
- The company’s mission statement – explain what your company is all about. What do you stand for? What difference would you like to make in your community or even in the world? What are your short-term and long-term goals? This section is critically important and should be at least a few sentences long, ideally paragraph length.
- Highlights – describe how your company has grown in the recent past as well as since its inception. Examples could include market highlights and financial highlights. This section is a perfect place to use charts or graphs to illustrate your successes.
- Services and products offered – describe what your company offers in terms of products and services.
- Financial information – this is a great opportunity to mention your current financial information, especially if you are looking for financing and investors. Include information about your current investors and your financial position.
- Plans for the future – where do you see your business going in the next five, ten, and twenty years?
For new businesses:
- Experience and background – what led you to want to start or join this company? How does your unique experience contribute to where you hope your company will go?
- Research and analysis – show your reader that you have done enough research and are knowledgeable about the industry you are joining. Be sure to describe the gap or need in the current market that you plan to fill, and how your unique approach will be more successful than previous attempts.
Needs and market – describe the market you are targeting, and why you believe this market has a need that only you will be able to fill successfully.
- Description of company – most importantly, describe for your reader who your business is and what your business is about. This is a great opportunity to make an amazing impression on your potential client and make sure that your company sticks in their mind long after they have read your proposal.
Description of the Company
The description of your company should be highly detailed, and allow the reader to quickly grasp the key concepts and goals of your company. You will need to convince potential clients that your plan is worth considering and that your ideas are well thought out.
Questions to consider:
- What is the nature of your business?
- What products and services do you offer?
- Who is the target audience or market for your business?
- What advantages does your company offer that others do not?
- What needs will your company fill and how will you fill those needs?
Consider this section your cocktail party pitch to an old friend who is inquiring about your current endeavors. How would you effectively capture the essence of what your business is trying to do?
This is also a great opportunity for branding. People love to get behind an idea or brand that they support and believe aligns with their own personal ideas or beliefs. By creating and clearly defining a unique brand, you give your business an aura or reputation that will stick in the minds of both your reader and your potential customers. The way you describe your company will set the tone for how others view your company. Put your passion for your business into your description so that your genuine interest shines through. By being honest, you will ensure your company description is authentic and meaningful.
Management and Organization
This is the nuts and bolts of your business. How will you operate on a day-to-day basis? Roles and responsibilities should be outlined with detail in this section.
Things to include:
- Details about company ownership
- Employee profiles, including team members, management, and board of directors
- List of departments
- The structure and organization of the company
- How is your company structured? The legal structure of your business is important to consider. Prospective investors will want to know who owns the company, what type of business it is (LLC, S-corporation, C-corporation, partnership, etc.), and what impact this will have on the company as a whole. You should include details about the current owners, including the extent of their involvement, as well as outside involvement that could affect or impact their relationship with your company. The experience and background of the company owners are important as well, as potential investors will make decisions based on the perceived trustworthiness and qualifications of the people in charge of your business.
This could include:
- The name of the owners
- How involved each person is with the company
- Each person’s role and what percentage they own
- Brief profile of each member
- Any community involvement
- Education, experience, and qualifications
- Past involvement with the company and other companies, if applicable
- Awards and recognition
- Compensation details
- Be specific! Examples: “Increased sales by over 20 percent over the last 12 months,” “Improved customer service scores from a rating of 75 percent to a rating of 95 percent in a six-month time frame”
Your analysis of the market needs to demonstrate your understanding and knowledge of your industry as well as the market you are planning to enter. This section should also include any research you have done, as well as the findings and conclusions you drew from that research.
In a traditional business plan, this section would directly follow the Company Description.
Things to include in your market analysis:
- Target market information – Be sure to narrow your target market to a manageable size. Be wary of a mistake that many businesses make – the mistake of trying to appeal to too many target markets. Always research and include the size, description, distinguishing characteristics, and analysis of your market.
- Size of target market – consider what data you can include the annual purchases your market makes in your industry. What is the forecasted market growth for this group? How will the size of your market influence your decisions and your overall business plan?
- Description and outlook of the industry – Describe your industry, including the historic growth rate and current size, and as well as other characteristics and trends such as life cycle stage and projected growth rate. Then list the major customer groups within your industry.
- Regulation and restrictions – which governmental agencies oversee your business? Describe how various customer, financial, or ethical groups affect your company, and how you plan to comply with their requirement. Specifically lay out a system of checks and balances, with specific departments or positions dedicated to ensuring your company remains compliant.
- Potential market share gain – Lay out how many customers or consumers you plan to gain in a specific area. Be sure to describe the logic and process that brought you to your conclusion. Also, include the market share for your specific area.
- Distinguishing characteristics – You need to determine what the critical needs of your potential customers are, and whether or not the needs of your potential customers are being met. Important things to consider are the demographic information of your potential customers (age, income, race, gender, etc.), location, and whether or not your customers are likely to be habitual purchasers. Keep in mind that certain items tend to be purchased once or twice in a lifetime, while others need to be purchased on a regular basis.
- Pricing – This area requires some research. Be sure to clearly define your pricing structure, using data from your research studies and market tests. You will need to have evidence to support your argument as to why your products are valued the way they are. You will also want to include any details about potential discounts, as well as your gross margin levels. What sort of markup will your products and services have?
- Analysis of competition – Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape:
- What share of the market your competition already has
- Where there is room in the market for your business
- The strengths and weaknesses of your competition
- The importance of your target market to your competitors
- Whether or not there are any barriers that may hinder you as you enter the market
- Your window of opportunity to enter the market, and why that window is important
- Indirect or secondary competitors who may impact your success. These are often overlooked!
- What, if any, barriers to market there could be. Some possible examples include changing technology, high investment cost, or lack of quality personnel
Ten Quick Tips
1. Define the problem – Every plan needs to start with an explanation of the problem that the business aims to solve, rather than a description of the company and products it will provide. Describe the problem in simple terms, being sure to quantify and justify the cost in dollars or time. Be specific and avoid generalized statements, which will only undermine your argument.
2. Offer a solution and benefits – Rather than providing a detailed product specification, explain how and why your service or product works. Be sure to include a customer-focused quantification of the benefits your company will provide. Again, be sure your language is clear and concise, avoiding too much detail.
3. Describe the industry and market – Try to capture the evolution of the overall industry, including customer landscape, market dynamics and market segmentation. A very efficient way to capture the story of your industry is by using relevant charts and graphs, with figures from accredited sources. This also helps to add a bit of color and visual interest to your presentation, and can often make a much more meaningful impact than words alone.
4. Explain your business model – This section should clearly explain how both you and your investors will make money. Details to include are who pays whom, and how much of that you get to keep after expenses, as well as your plans for a cash reserve and potential unexpected expenses. A quick glance at your business model should give investors a decent grasp of the potential for your business to grow.
5. Lay out the competition and your advantage – Describe and list all of your competitors, including similar products or services. For example, if you are selling a speedboat, do not forget about jet skis and pontoons. Then, detail your long-term competitive advantage, and highlight any barriers to entry that could keep your competitors at bay.
6. Describe your sales strategy – This is where you sum up how you will go to market, including your distribution and pricing channels, which could also include strategic partnerships. This is also a very good place to map out a timeline of the key milestones you hope to achieve.
7. Outline your executive team – At the end of the day, investors ultimately bet on people, and not just ideas or words on a page. You need to convince potential investors that your team has the skills, passion, and determination to start new businesses. You also need to demonstrate a deep knowledge of the company’s specific domain. Be sure to include members of the Advisory Board as well as key industry players who are involved in the company.
8. Explain your required funding – Your potential investors will want to know how you arrived at the amount of capital you are asking for and would likely appreciate an in-depth description of how you plan to use that money. Show the amount of financial commitment that the founders and equity owners have in the company. Don’t forget to include sweat equity, or the hours worked in exchange for a percentage of the company, as opposed to a monetary or cash salary.
9. Describe your financial forecast – This should include revenue and expenses from the last three years if relevant, and a projection for the next five years. Clearly, demonstrate and justify any and all growth assumptions, and highlight the break-even point.
10. Detail your strategy for investor return – This section is especially important when you are courting outside investors who are eager to know how and when they will get their money out, and what sort of return they should expect. The original exit of choice for many investors, initial public offerings, are unfortunately very few and far between these days. Do you plan to keep your business in the family? Then you do not need to worry about convincing investors they will receive a good return on their investment.
Insider Tip: Many entrepreneurs build companies only with an eye to sell them. However, this tactic can prove dangerous and rarely works out in the entrepreneur’s favor. Instead, focus on building a truly sustainable business, and worry about the money, fame and fancy cars later.
Make your business plan stand out
The first step is to determine who your target market is, and describe why they would be likely to buy your products and/or services. Analyze whether or not your business would be a likely candidate for someone of your target market to utilize. You need to make the benefits of dealing with your business clear to potential customers and ensure that they are aligned with the needs and expectations of your market.
Always be clear about what you are really offering your customers. Other than just the products and services you sell, what big-picture needs are you hoping to fill in your community? There is a niche for everything and everyone, and your business plan needs to outline what your unique niche is and how it will fit in with the other businesses in your market. Consider your business as a combination of brand experience, ambiance, and value.
Some things to consider:
- Where is your competition already well-established?
- Where is the potential for your business to succeed?
- Which areas have your competitors neglected?
Be strategic when defining exactly what it is that you plan to sell. Being highly successful in one area is much better than being moderately successful in many areas. In fact, attempting to do too much can have a negative impact on the growth of your business – something we certainly do not want to happen!
Insider Tip: Break down your products and services into small, manageable pieces. Each smaller operation will be able to offer specialized goods to specific markets.
I like to think of marketing as the process of creating customers, and since customers are the most important element of any business, including yours, this step is critical. In this section, the first key element you want to tackle is to define your marketing strategy. There are many different ways to approach any marketing strategy; your strategy should be unique to your company, and part of an ongoing business-evaluation process. However, there are a few common-sense steps that you can follow which will help you think through the direction and methods you would like to use to drive sales and maintain customer loyalty.
Below are four different potential marketing strategies. These can be used individually or combined in various ways to create the perfect marketing strategy for your company.
This strategy for building your business could include a horizontal strategy in which you would provide the same type of products to a variety of different users, or a vertical strategy in which you would continue providing the same products but would offer them at different levels of the distribution chain. This strategy could also include an internal strategy such as how to increase your human resources, a franchise strategy for branching out, or even an acquisition strategy such as buying another business.
Channels of distribution
Choices for distribution channels could include retailers, OEMs (original equipment manufacturers), distributors, affiliates or even an internal sales force
How do you plan to reach your customers? Generally, a combination of the following tactics works best: social media, public relations, personal selling, and promotions, advertising, trade shows or conferences as well as printed materials such as brochures, catalogs, flyers, etc.
As soon as you have developed a comprehensive marketing strategy, you can begin to define your sales strategy. This details how you plan to actually sell your product or service.
Your sales strategy should include two key elements:
- A sales force strategy – If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?
- Your sales activities – When you are defining your sales strategy, it is important that you segment your strategy into individual activities. Some examples could include identifying who your prospects are, prioritizing your contacts (starting with the highest potential leads), identifying the number of sales calls you should make over a certain period of time, and how you plan to quantify your results and successes. Once you have that data, you can begin to determine the average number of sales calls you will need to make per sale, the average dollar amount per sale, and the average dollar amount per vendor.
Request for Funding
If you are like most potential new business owners, you are probably seeking funding for your business venture. This plan will help you get the funding you need.
Your request for funding should always include the following information:
- What your current funding requirement is
- Whether or not there are any future funding requirements over the next five years
- How you plan to use the funds that you receive. Some potential questions to consider:
- Is the funding request only for expenditures related to capital?
- Will there be any future working capital needed?
- Do you have any debt that you would like to pay down with the funds?
- Are there any acquisitions planned for the immediate or distant future?
- However, you plan to use the funds, make sure you outline your plans specifically.
- Whether you have any strategic financial situational plans for the future. Examples could include selling your business, being acquired, a debt repayment plan, or even a buyout. These areas are critically important to any potential future creditor, as they will directly impact your ability to repay your loan(s).
Helpful Hint: When you are detailing your funding requirements, be sure to include the amount you need now and the amount you will need in the future. Also include the time frame that each request will cover, as well as the type of funding you would like to have (for example, equity or debt) and the terms that you would like to have applied to the loan.
Ideally, you should develop your financial projections section after you’ve analyzed the market and set clear objectives. This will ensure that you can allocate resources efficiently. Below you will find a list of the essential financial statements you should include in your business plan packet.
Historical Financial Information – If you own an existing established business, you will be required to supply any historical data related to your company’s performance. Most creditors request data for the past three to five years. This amount could be more or less, depending on the length of time you have been in business. The historical financial data that you should include are your company’s income statements, balance sheets, and cash flow statements for every year that you have been in business (generally for up to three to five years). Creditors are also frequently interested in any collateral that you may have that could be used to ensure your loan, regardless of the age of your business.
Prospective Financial Information – All businesses, whether startup or established, will be required to supply prospective financial data. In general, creditors will want to see what you expect your company will be able to do within the next five years. Each year’s documents should include cash flow statements, forecasted income statements, balance sheets, as well as capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. For each subsequent year, you can draw it out it to only quarterly or even yearly projections for years two through five.
Be sure that your projections match your funding requests because creditors will be on the lookout for any inconsistencies. It’s much better if you identify and fix any mistakes before your potential creditors do. If you have made assumptions within your projections, make sure you identify and summarize exactly what you have assumed. This way, the reader will not be left wondering.
Finally, include a brief analysis of your financial information. This should include a ratio and trend analysis for all of your financial statements (both historical and prospective). Because pictures can often be much more effective and impactful than words, you might want to include graphs of your trend analysis (especially if they are positive).
You may want to consider including an Appendix to your plan. This could include any items that do not quite fit into other parts of your plan, such as your credit history, resumes, letters of reference, and any other additional information that a potential lender could request.
In summary, the most effective business plans need not be the longest, the most creative, or the most attention getting. The most effective business plans inform, engage, and enlighten, leaving the reader confident about your company’s potential and confident in your ability to live up to the expectations you have laid out. All potential questions should be answered, leaving no doubt in the reader’s mind that your plan has been meticulously thought out.
Latest posts by George Meszaros (see all)
- How to Start a Blog: What is the Best Blog Platform? - September 20, 2017
- How to Start Your Own Private Investigation Business - September 19, 2017
- 4 Reasons why Every Business Owner should Consider getting an Accounting Degree - September 19, 2017