Developing a Business Plan
What is a business plan?
A business plan describes the basic idea underlying a business and related startup considerations. A comprehensive business plan provides an in-depth analysis of the critical factors that will determine a firm's success or failure, along with the underlying assumptions.
Why Write a Business Plan?
- It can be a reality check, forcing the writer to look at the business in an objective and critical manner.
- It helps focus ideas to manage the business and prepare you for success.
- It serves as a feasibility study of the business's chances for success and growth.
- The finished plan serves as an operational tool to define the company's present status and future possibilities.
- It is a communication tool for your business. It defines your purpose, your competition, your management and your personnel.
Components of Your Business Plan
The Executive Summary
The executive summary is written after all other sections are completed. This is a brief descriptor of the firm and its mission. It should highlight the firm and engage the reader and should be concise, preferably one page, and no more than three pages. The key is to pique a reader's interest so they will read the rest of the plan. This section should be organized in the following manner
The mission statement briefly explains the ideals of your business. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.
For more information:
The company name and location(s)
- Include information, location of facilities and subsidiaries
- Include the names of the founders, their involvement with the firm and their current input
- Discuss investor information (other than founders)
- Provide banking relations
Highlight areas of competitive advantage and specific expertise
Information about the product(s) or service(s) provided
Highlight the key products or services, rather than providing a lengthy list
Legal form of the organization (Sole proprietorship, partnership, corporation)
Brief description of where the firm is in its life cycle (Startup, buyout, expansion) Cover special achievements such as patents
Company Overview/Company Summary
This section defines the firm, what the firm does, and the firm's competitive advantage.
- Discuss the firm's origination and development
- Include a brief description of the different segments of the business and how they fit together
- The basic nature and activities of the business
- The primary product or service
- Define what it is the business does and why you are in business
- List the marketplace in which the firm operates
- Specific needs within the marketplace
- Discuss the current economic condition of the industry and the prognosis for the future
- Discuss the firm's competitive advantage
- Discuss how your firm will satisfy the needs of the marketplace
- Define the marketplace and how individuals and businesses will benefit from your firm's product and/or service
Products and/or Services Plan
This section should highlight what the firm does now, provide insight into the future, and describe what the firm is planning to do. This section should sell the user on the benefits of doing business with your firm. More than just saying what you product or service is, describe why the target market will benefit from it.
- Include a detailed description of the product or service. Be sure to describe this from the customer's point of view. The reader should relate to the product or service.
- Features of the product: What does the product do for the consumer?
- Benefits of the product: How is the consumer better off by using the product?
- Product Life cycle: Products move through a life cycle based on consumer awareness, and diffusion of the product into the market. As products move through the life cycle firms adapt to stay competitive.
- Modifying the product may increase the life cycle. Modifying a product includes increasing quality, performance or appearance.
- Modifying the market may increase the customer base or increase product use with current customers.
- Repositioning the product may affect consumer perception of the product and increase sales. This is done by changing one of the four P's of the marketing mix (product, price, promotion, and place).
- Discuss product development and research & development. This may relate to incremental increases in a current product (life cycle management), or advancement of new products (diversification). Include an analysis of the future direction of the competition. Understanding the competition is a competitive advantage, and one most investors are interested in.
The marketing plan defines your target market, your competition, your marketing strategy and competitive advantage.
- Analyze the target market: Who is the specific group the firm is going to reach? How will the firm penetrate the market?
- Marketing Strategy
- Market Penetration: Increased sale of products in an existing market
- Growth Strategy: Human resource development, mergers & acquisitions and franchising
- Distribution Strategy: Internal sales force, distributors, or retailers.
- Communication Strategy: List your promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, and fliers.
- Marketing Mix
- Product: Exclusivity, brand name and capacity management
- Price: Pricing is powerful. It can denote quality or cost effectiveness. The firm must price according to its target market.
- Promotion: Discuss how the firm will get the word out. Discuss how the firm will show the benefits of purchasing its product or service.
- Place: Distribution outlet. Discuss how the product or service gets to the consumer, or how the consumer gets to the product or service.
This is often viewed as the most important part of the business plan since investors often look for an excellent management team and a good product or service more than a good management team and a great product (Longenecker, 2006).
Detail the firm's structure and the background of each of the key individuals. Include development plans for key personnel. A firm with development plans for the key individuals is preparing for sustainable competitive advantage. Investors look for cues defining a firm's long-term viability.
- Management team
- Include all pertinent background information and skills. Some business plans include resumes for all key management personnel.
- Position (include brief position description along with primary duties)
- Primary responsibilities and authority
- Unique experience
- Prior employment
- Special skills
- Past track record
- Industry recognition
- Community involvement
- Number of years with company
- Compensation basis and levels (make sure these are reasonable - not too high or too low)
- List the key investors, directors and outside resource people.
- Include pertinent background information and skills.
- Plans for recruiting and training personnel. (Longenecker, 2004).
- Make an organizational chart with full descriptions of duties and responsibilities. This will show the chain of command and provides verification that the plan is well thought out.
- Operating or manufacturing system to be used
- Description of the facilities including location, space used and equipment necessary
- Material or services used
- Product processing requirements
- Source of supplies
- Purchasing procedures
- Quality control measures
- Inventory control measures
The financial plan is second only to the management plan. This section will define the need for capital and the sources of funding. It will include projections of revenues, expenses, and income (profit).
- Historic financial data for three to five years. If the firm is already in existence put together historical data that includes annual financial statements: Balance Sheet, Profit & Loss (Income Statement), and Statement of Cash Flows.
- Financial Projections for three to five years. New or existing businesses must provide projections. It is also a good idea to include best and worst case scenarios. This should include a proforma Balance Sheet, Profit & Loss (Income Statement), and Statement of Cash Flows.
- Include an analysis of the projections. Summarize what the reader should focus on. Explain any assumptions in the financial projections. Include a trend analysis of historic data, and a narrative explaining the projections.
Additional Business Plan Resources
Sample business plans
SBA's start up guide
Business Plan for a Startup Business
Longenecker, Justin G., et al. (2006). Small Business Management: An Entrepreneurial Emphasis, 13th Ed. Thompson South-Western. Mason, Ohio 45040.
Marketing: The Core Hartley, Steven W., Kerin, Roger A. and Rudelius, William. (2004). McGraw-Hill/Irwin. New York, NY 10020.
The Small Business Administration Web Site. Retrieved August 6, 2009 from: www.SBA.gov.