A business plan is a description of your business and your strategy for making it a success. You may need to hire a business plan consultant to help you get your business of the ground. Many investors, sponsors, and donors will require a business plan in order to provide funding for your idea.
A good business plan can be a roadmap for your business’ future. It can help you to secure capital, and faster growth. Professional familiar with the matter and studies indicate show that entrepreneurs who write a business plan are 260% more likely to actually start the business.
Even investors partners and other stakeholders are likely to get enthusiastic to support the idea when there is an elaborate business plan.
More still, in a world of uncertainty, a business plan helps you to anticipate problems and prepare preventive measures against them.
What to put in a business plan depends on a particular idea. However, there are some common elements that you must not miss irrespective of the audience and goal like executive summary. Most financial institutions require detailed cashflow projections in a business plan that you present seeking a bank loan.
As you write a business plan, you need to be mindful of your target audience. This may include any of the five categories listed below:
Venture Capitalists: These mostly care about how they will get their money back, or an exit strategy.
Potential Partners: This category wants to know about who they will be working with and how. The business plan has to include operations plans, and management summaries.
Financial Institutions: Debt funders tend to care about cashflows since this is one way your business will repay the principal. You must include detailed cashflow statements.
Senior Management: This mostly applies to existing businesses where you may what to introduce a new product. You will need a good business plan to convince management to accept.
The Entrepreneur: As the owner of the business idea, you also need to keep looking at those well written milestones and action plans to keep on track. Be sure to keep it closer as a living document.
Irrespective of the audience, every business plan must have the following core elements;
- The key people who will run the organization
- The business opportunity and why it is unique
- The context, or the forces and trends that will affect your idea
- The risk and reward (success or failure)
9 Steps to Write Contents & Key Elements of a Business Plan
1- Write an Executive Summary
Even after days of hard work, it is most likely that your investors and other stakeholders might not read it. All investors want you to compile everything accurately and of course for your own good.
An executive summary is the first item in the table of contents. It is just one page of the business plan giving the basics that would inspire the anyone to keep reading. This can win you a meeting with a potential investor.
An executive summary should be as compelling as possible. Use form business language. It gives an overview for each section of the business plan from competitors to financial plan.
The text of the executive summary should be attractive to read. Use subheadings every time you introduce a new topic, use attractive graphics to illustrate complex ideas, and bullet points for lists and important concepts.
With your executive summary ready, you’ll have completed your business plan. It should be a living document that you can always revisit and improve.
The order of all these elements will vary but most business plans start with an executive summary. This is a formal one-page summary about your plan. It highlights all the aspects of the business from the mission statement to financial analysis.
2- Write a Company or Business Description
This is a grand overview or call it a punchy inspiring summary of the company and its future. If well written, this should outline your business model, its uniqueness, and how you intend to grow the business. This is the part which you will mostly use to pitch your business idea. The only difference is that your pitch will be a verbal summary which is crafted to intrigue potential investors.
It is popularly called an “elevator pitch” because it has to be short enough to be delivered from one floor to the next in an elevator. This part should be well written in such a way that it excites and generates enthusiasm about the business and its future.
The most important thing here is to stick to what makes your company special, and don’t fall into the trap of details. Your concise company description should outline the unique advantages, your plans for growth and if a mission statement if you have created one.
The stakeholders will mostly be looking for how your business will make money, the unique advantages you have and how you will grow.
3- Analyzing the Business Environment
Doing background research will help you to better understand your industry. You will also need to analyze your competitors to identify your unique advantages. It is also through this analysis that you specify your target market.
Every business typically has outside forces, that will mostly consist of three parts namely:
• Industry background analysis intended to discover industry trends
• The competitive analysis which outlines the competition and;
• The market analysis which describes the target market for your products or services
4- Describe the Industry (Industry Analysis)
The industry background might take up to 2 Pages. It should help you to answer four key questions about the industry. These include:
a) What is the industry?
The answer to this question highlights for your the size of the industry, what it produces and whatever it is global or simply local. You will also learn about whether it is profitable or a “death pit” industry.
b) What is the industry’s outlook?
This will address any issues around growth rate, emerging trends and possible changes.
c) How Competitive is the industry?
You must be able to use this section to determine the number and the number of resources they control. This will help you to gauge your competitive advantage.
d) What are the barriers to entry?
Here you will know any regulatory barriers, capital requirements, technology and specialized skills needed.
e) Competitive Analysis
It is more likely that the industry analysis provided information that’s general and yet you’ll need more specific details. This is where market analysis comes handy.
This section lists your competitors, and any substitute goods and the unique strengths and their weaknesses. Make sure to include what sets you apart from the crowd.
This section should also highlight the industry’s competitive analysis. This will help you to discover how threatening your competitors are. They can block your entry, copy your business idea or offer a higher pay and take your expert team members.
5- Prepare a Market Analysis
You have to conduct a quantitative and qualitative analysis of your target market. You need to understand better the market segment you’re targeting with your products or services.
You have to learn about the critical needs of your target market. In essence if the market doesn’t need your product, you’ll have a hard time to convince them to buy. Establish how your product can uniquely meet the needs of your market segment.
6- Write Management Summary
Great ideas come into fruition because of people around the proprietor. You must deliberately look out for the best. In fact, investors are equally concerned with the quality of the team you put together in the management summary.
The purpose of this section in any business plan is to describe your leadership team. It should clearly show the achievements of key players.
A team of professionals with a good track record can motivate investors to bring their money. It is also good for your future workforce motivation.
Inexperienced leaders can easily ruin an idea that would otherwise be a good market fit. If you look around for people with no experience, you’re more vulnerable to failure.
In the initial stages, the team tends to be small with at least 4 members mainly composed of founders and the advisors or consultants.
This part has two sections. Section one will outline your company ownership structure (i.e., the ownership structure), and how a team functions within the company. (i.e., the organizational structure). The ownership structure will tell the stakeholders whether the company is a sole proprietorship, partnership, corporation, or LLC.
The organizational structure will describe the kind of structure you have adopted for the start. This may be functional, divisional, tall or flat.
Your team may not be perfect because of a few skills gaps. You may have to add a section of skills concerns. This outlines the skills gaps and how you plan to address them.
For example, if it is the first time the proprietor is holding a CEO position, you may plan to address this by appointing a mentor who is possibly a CEO of a big profitable firm.
7- Prepare an Operations Plan
This section of your business plan describes an overview of the day-to-day activities of your company. It outlines what your business will require to run smoothly like location, equipment, manufacturing and suppliers.
You must be able to discuss the relationship between your location, shipping costs, raw materials needed, the source, and who will provide them.
If you plan to manufacture goods, you have to describe your process and distribution channels and availability of the skilled worker for hire in your area of proximity.
With a good structure of a business plan, you’ll start with location description. This should explain how the said location will help your business to succeed. A good picture will help your readers to visualize the business.
You’ll also need to indicate how you’ll source your supplies. Some businesses require creating of long-term relationships. This is where a table helps to outline names of vendors, their addresses and the specific products or services they’ll be supplying.
Another item in the operations plan is the manufacturing and distribution plan. This is the section where you describe how you’ll transfer your products to consumers.
The operations plan ends with the employment section. This part describes strategy for recruitment, selection and resourcing talent.
8- Prepare a Marketing Plan
This is the section where you write a marketing plan to include the 4 Ps of the Marketing mix. Your marketing plan outlines the strategy for attracting and retaining customers.
A marketing plan should guide you on how you’ll get customers to buy your product, or service.
A Typical Marketing Plan Sample Outline Includes the Following Elements:
I. Target market analysis
II. Unique selling proposition
III. Pricing & positioning strategy
– Positioning statement
– Pricing& competitor comparison
– Bundling & Special Offers
IV. Distribution& Sales
V. Promotional Strategy
– Retention Plan
You will have to outline your marketing mix. The 4 Ps can address the following questions:
What exactly are you selling and what is unique about it? More still, you have to write a good unique selling proposition (USP). Explain clearly and logically why your product is better than all others on the market.
How much will I charge for my product or service? While setting a price, you have to begin with brand positioning. This refers to that distinctive place you want your product or service to hold in your customer’s mind. For example, if your brand is a luxurious one, you have to set a higher price.
This addresses the question of where consumers will find what you sell. This is what we had earlier seen under sales and distribution. You need to list the following;
-Point of Sale System (how the business accepts payment)
– Location of the business and it’s accessibility
Lastly, you’ll need a section on promotion. This is about how you will inform potential customers about what you sell. You may have to figure out if you need incentives to make your potential customers to try your product.
Promotion is about advertising, public relations, sales promotions, and personal selling. You might list the strategies like the use of billboard campaigns, social media plan, referral program, and third-party partnerships.
The Key Parts of a Marketing Plan
In summary, the marketing plan outlines a company’s strategy for attracting and retaining customers and will have the following parts:
• The target market which is the group of consumers that a company aims to target and attract;
• The marketing mix which describes the 4 P’s: product, price, place, and promotion;
• Brand positioning which refers to the distinctive place that a brand will hold in her customer’s mind, and;
• The USP which identifies the company’s product and why it’s better than any competitors’ products.
9- Write a Financial Plan
Getting into business means making money and that’s why this is the most important parts of the business plan. You want to know whether you’ll make money or lose. This section will lay down the rewards or risks involved.
In most business plans, the content is guided by the stage at which a business is. I’m sure you know that a startup has lesser resources than an established business.
More still, the contents may be written with the target audience in mind. Banks will want to look at the cashflow projections to gauge your ability to service any loans. Investors are much more interested in an exit strategy or how they’ll get their money back.
If you’re not familiar with Accounting and Bookkeeping, you might need help of an accountant or finance expert.
Most Financial Plans Will Describe the Following 8 Elements;
For any realistic projections, you must deliberately list the assumptions. This helps your audience to determine whether the financial plan is reliable or not. These assumptions include expected growth in the industry, fixed and variable costs, sales growth rate, of seasonal cash flow and cost of capital.
For Example, the projections in this business plan have been arrived at on the assumption that the initial sales growth will be 9%; Loan interest rate of 5% $19,000 in fixed costs and an estimated $10 per day in variable costs
II. Capital Requirements
You have to create an outline of the things you need to use and the money you have to raise for your start up. Be realistic and accurate without forgetting to provide for contingencies. Experts familiar with this subject have estimated 20% as being reasonable.
You can now specify how much you have raised and how the funds will be utilized. Try your best to use numbers and accurate information.
III. Income Statement
This reflects the performance of the firm over a given period of time.
IV. Cash Flow
This shows the cash inflows and outflows of the business. Remember, some financial institutions or any other lenders will have to be sure that your cashflow projections demonstrate capacity to make your regular loan repayment and on time.
V. Balance Sheet
A balance sheet is a summary of the financial balances of an individual or organization. This can be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity.
You should aim to estimate for the first 3-5 years into the future. Less than that may not help yet more than that can’t be accurate. I’m sure you might be suppressed about these appearing in a business plan yet accounting statements are a record of past performance. Let me explain, when they are in a financial plan, they’ll be a projection of future performance; they elucidate the expected changes in investment, liability, and financing.
After these projections, you’ll surely have done a good job but a bit more work lies ahead of you. It’s okay if you can order and enjoy hot some chocolate! You’ll have to analyse the statements to establish the possible rewards (profits), risks (loses). This explains why we need the break-even analysis.
VI. Break-even Analysis
This part explains how much you need to sell in order to avoid making losses. It is one way to reveals the point at which you will have sold enough units to cover all of your costs.
VII. Risk/return analysis
Investors will need to look at Return on Investment (ROI). This can be presented graphically. More still, investors will expect a low-risk venture to produce low returns while a high-risk venture yields high profits.
VIII. Exit strategy
Your financial plan should also elaborate clearly the firm’s exit strategy. This answers the questions about how your investors will get their money back.
Here you outline the options you’ll make available:
– Merger or acquisition which has proven to be the most common exit strategy for startups. Under this arrangement, established companies buy smaller
ones for both their intellectual property and their talent (known as acquihires)
-Selling of shares to existing partners
– liquidate all your assets at market value
– Going through an initial public offering (IPO).
Recap of the Key Elements of the Business Plan
This section is a description of the leadership team that you intend to work with on the business.
Industry Background & Competitive Analysis
This is where you show the data on the industry and competition
This section summarizes the assessment of target customers
This is a description of the day-to- day activities
This presents the strategy for how you will sell your product
This is where you elaborate the company’s financial standing and projections.
An effective business plan and discover what it takes to be a successful entrepreneur. Use a business plan to describe your company, do a market analysis and outline the management and organization. It will help you to list your products and services, define a marketing plan and draft a logistics and operations plan.
A well written business plan will help you to bring the future into the present so that you can do something about it now! It is a valuable tool to attract investors and obtain funding from banking institutions. Well written contents of a business plan make it easier to communicate your business idea to stakeholders. It also helps entrepreneurs track and evaluate progress towards goals.