Many entrepreneurs write a business plan only when they need to secure financing. However, a business plan isn’t just a fund-raising tool. It’s an invaluable roadmap for launching and growing your business.
Writing out your business plan forces you to review everything at once: your value proposition, marketing assumptions, operations plan, financial plan and staffing plan. This will answer the question on where you want your business to go and how you’ll get there.
Doing Your Homework
Writing an effective business plan is easier if you take time before starting the writing process. Conduct your research and gather the information you need to incorporate into it. Entrepreneurs and business experts recommend researching and gathering information on the following:
- Marketing strategies
- Regulatory environment
- Capitalization requirements
- Financing opportunities
Writing Your Business Plan
A business plan can come in all shapes and sizes and what you choose to include in it usually depends on your audience, the question it seeks to answer or the problem it seeks to resolve, and your personal preferences. With that said, they also usually contain the following common elements:
The executive summary is an overview of the key points contained in your business plan. It always appears first in the document although it’s recommended that you write it last. Its purpose is to educate and inform the reader about the company. It should explain where the company is at the present time, where it is going and how it plans to be successful. If you prepared the plan for an external audience, such as investors or bankers, the executive summary is the first opportunity for you to engage the interest of the reader.
Your executive summary should include the following information:
- Mission Statement – This explains to the reader why your company exists.
- Company Information – This is a brief statement giving a historical perspective of your company. It should include the date of formation, locations, company founders and number of current employees.
- Highlights – This is an opportunity to tell the reader about profit or market milestones achieved by the company since its inception.
- Products and Services – Briefly mention and describe the products or services offered by the company.
- Financial Information – This section is particularly important for companies seeking financing and should include mention of bank references and investors.
- Future Projections – Explain the direction in which ownership and management plan to take the business.
This section of the business plan is an overview of the company. This includes the company’s legal structure, its owners and management, a brief company history, information about the products or services it offers, markets the company will serve and other information to demonstrate how the company plans to introduce its product into the marketplace.
The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions.
The following information should be included in your Market Analysis:
- Industry Description and Outlook – This should include information about projected growth, potential changes in consumer demand and anticipated trends or cycles that could affect product performance.
- Information About Your Target Market – Describe the customer need that your product or service satisfies. Provide demographics about your customers and show how the product your company offers falls within those demographics.
- Size of the primary target market – Be as specific as possible with regard to your market and your product. If your market research shows that the market has been shrinking, a decision to enter or continue in the market should be supported by research supporting a prediction for future growth.
- Pricing and gross margin targets – Define your pricing structure, gross margin levels, and any discounts that you plan to use. Describe how your marketing and pricing will give your company an advantage in the market, or describe what changes must be made to give your company an edge.
- Competitive Analysis – Identify your competition by product line or service and market segment. This should also show how your company will compete with other companies offering the same or similar products or services.
The marketing strategy section of your business plan describes the activities you will use to promote and sell your product or service.
An overall marketing strategy should include these four strategies:
- A market penetration strategy.
- A growth strategy. This strategy for building your business might include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.
- Channels of distribution strategy. This describes how your products or services will be sold (e.g. storefront, online, wholesalers).
- Communication strategy. This strategy controls the communications process between the company and its customers. This could include promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
Operations And Management Plan
The operations and management plan is designed to describe just how your business functions on a continuing basis. This section should also include your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.
This section of the business plan provides readers with a picture of where your company has been and where it is going from the point of view of its finances. If you have an established business, you should supply historical data related to your company’s performance. Banks, venture capitalists and other lenders usually request data for the last three to five years, depending on the length of time you have been in business.
Financial forecasts should include the following documents:
- Statements of projected income
- Balance sheets
- Cash flow statements
- Capital expenditure budgets
Your forecasts should cover a range of scenarios, and you should include the contingency plans you’ve developed to offset any risks. You can also review benchmarks and averages for your type of business and discuss your business’ position.
An appendix usually contains extra documents such as tax returns, your resume, research, leases or contracts, letters of recommendation, etc.
Note that business planning is an ongoing business activity. You should revise your business plan as circumstances change to keep it updated and modify it for different readers, such as employees and lenders.