A business plan is an essential tool for starting or growing a company. In this post, I’ll briefly give an overview of the many benefits of creating a business plan. Then, I’ll walk you through each section of the business plan and tell you what to include and how to make it great.
The Benefits of a Business Plan
Sure, creating a business plan isn’t the most fun activity you’ll do all year. But the benefits far outweigh the costs. The major benefits include the following:
If you need funding to start or grow your business, you need a plan. Investors and lenders will require you to have a plan and will review it thoroughly before making an investment in your company.
Proving the Viability of Your Business
Developing your business plan forces you to think through each key aspect of your business. In doing so, you are able to tell if your business is viable or not. For example, in putting together your financial projections, you may see that the only way to earn a profit is to charge fees that customers can’t afford. In such a case, knowing this beforehand would save you from eventual failure.
Improving Your Business Strategy
The key sections of your business plan, as discussed below, force you to think through and document your business’ strategy. By spending time developing the right strategies and documenting them for clarity, your business will be much more likely to succeed.
The 10 Sections of Your Business Plan
A great business plan has ten sections as follows:
- Executive Summary
- Company Overview
- Industry Analysis
- Customer Analysis
- Competitive Analysis
- Marketing Plan
- Operations Plan
- Management Team
- Financial Plan
Below I will walk you through each section and tell you what to include in it and how to make your plan great.
1. Executive Summary
Your executive summary gives an overview of your business and summarizes the key points made in the other sections of your plan.
Here’s how to make it great:
- Start with a concise explanation of your business. Don’t start your plan with a story of how you conceived your business. Rather, give a one to a two-sentence elevator pitch that describes what your company does. For investors and lenders who need to read many plans each day, this helps them see right away if your business is one in which they’re interested.
- Identify your unique success factors. This is perhaps the most important of your plan, and unfortunately, a section that most business plan templates miss. Think about why you are currently uniquely qualified to succeed or what you need to accomplish in order to become uniquely qualified to succeed.
For example, if you were recognized as the world’s leading expert in X, you’d be uniquely qualified to succeed in the X business. So, having highly experienced and skilled executives, managers and/or team members is an area in which you may be uniquely qualified to succeed. Here are some other areas:
- Marketing: maybe you have partnerships with other firms that give you unique access to new customers. Or perhaps you have been in business for many years and you have great brand recognition
- Product/Service: maybe you have a product or service with key advantages over competitors and perhaps you have a patent or trade secret
- Operations: perhaps you have built operational systems that allow you to deliver products or services with higher quality and at a lower cost than competitors
- Customers: maybe you have long-term contracts with customers making you immune to competitive threats
Once again, document the areas in which you are uniquely qualified to succeed in your executive summary and mention them throughout your plan. And think through what you need to do (e.g., hire new staff members) to gain new unique qualifications.
2. Company Overview
The company overview section gives background information on your company such as when it was conceived and what type of structure it is (e.g., C-corporation vs. sole proprietorship).
To make this section great, document all the milestones your company has achieved to date. Investors and investors know that the best indicator of future success is past performance and success, so you must explain your past successes here.
For instance, present a chart that shows dates in which your company:
- Hired its Xth employee
- Secured its Xth customer
- Reach $X in sales
- Launched its Xth location
If you’re a startup, you can still show accomplishments such as when you:
- Conceived the business
- Incorporated the business
- Designed the logo
- Found office space
- Signed a letter of intent to hire an employee upon financing
3. Industry Analysis
The industry analysis section of your business plan details the industry in which you are competing, the size and fundamentals of the industry, and trends shaping it.
To make this section great, do the following:
- Cite external research sources. By citing external research sources (such as “According to the National Restaurant Association, restaurant sales have…) you educate the reader and give yourself credibility that you truly understand your market and know where to go for information.
- Show how market fundamentals and trends support your business: Ideally market trends support your business, and clearly, hopefully they don’t go against it. For example, the shift over the last 20+ years of people finding information online would be an unfavorable trend for someone interested in printing phone directories. As much as possible, don’t just state market information and trends but show how they bode well for the future success of your company.
4. Customer Analysis
The customer analysis section of your plan details your target customers. To make this section the best it can be:
- Cite external research sources. Once again, cite research sources to make your figures credible. The US Census Bureau has a wealth of free information on US residents.
- Provide demographic information: Let’s say you want to start a car wash business. In your plan, you should include information about how many residents within 10 miles of your location own a car. Likewise, adding gender information (if there’s a difference in gender habits for car washing), age information, etc. you can better define your market.
- Estimate the size of your true target market: by doing some simple math, such as the number of car owners multiplied by percentage making over $Y in income, you can estimate the true size of your market. This will be helpful in ensuring your financial projections make sense (e.g., your sales can’t be more than your target market could pay).
5. Competitive Analysis
The competitive analysis section of your business plan presents your direct and indirect competitors. Direct competitors provide the same or similar product or service as you do. Indirect competitors provide alternative solutions.
For example, if you offer repair services, other repair technicians will be direct competitors. Customers doing repairs themselves and online video repair videos would be indirect competitors.
For each direct competitor, document their strengths and weaknesses. Importantly, to make your plan great, identify and document your areas of competitive advantage. These are similar to your unique success factors mentioned above. The more you have advantages or unique factors that your competitors don’t, the better positioned you are for long-term success.
6. Marketing Plan
Your marketing plan must document the 4Ps as follows:
- Product. Here you will identify the product(s) and/or service(s) that your company offers.
- Price: Document your pricing
- Place: Place refers to how your customers will buy from you. Will they purchase from your storefront? Buy from your website or direct mail catalog? Purchase from a distributor? You need to document the answer to this here.
- Promotions. Your promotions plan details how you will attract new customers. For example, will you use direct mail? Pay per click advertising? Social media marketing? Etc.
To make your marketing plan great, provide as much detail as possible with regards to your promotions plan. Companies that are able to cost-effectively bring on new customers are nearly always successful.
If you’ve already had experience with promotional mediums, document past results. For example, you might say that to date you’ve used pay per click advertising to attract 1,000 customers with a customer acquisition cost of $22 each. This will help investors better assess your financial model and profit potential.
7. Operations Plan
Your operations plan details the everyday operational functions your business must perform to succeed and your growth milestones.
With regards to everyday operations, simply list the key functions your company performs (e.g., manufacturing widgets). With regards to growth milestones do the following to make your business plan stand out.
Start with your 5-year vision. Let’s say that vision is to achieve $5 million in sales. Then, create a chart working backwards that shows what you accomplished between now and then to achieve that vision. For example, propose a date when you hired your Xth employee, when you secured your Xth customer, when you formed a key marketing partnership, when you reached $X in sales, etc.
Get as granular as possible, particularly for the next 12 months. Essentially you are creating and documenting the goals you must accomplish in the coming year. And these are the goals that will put you on the right trajectory toward meeting your 5-year goals and vision.
8. Management Team
Your management team section lists the key members of your team.
To make it great, show that your team has the experience and expertise to build a great company. Discuss your team members’ accomplishments in their current and past positions.
If your team is lacking, that’s ok. Just document the positions you plan to fill and the qualifications of your ideal candidates.
9. Financial Plan
The financial plan section starts by detailing the amount of funding the company needs if applicable. It should then detail the uses of these funds so both you and others have clarity regarding where money will be spent.
Next, you will include summaries of your financial projections which include your income statement, balance sheet and cash flow statement (your full projections will go in your appendix).
To create a great financial plan:
- Use Realistic Assumptions. It’s easy to assume your company will grow by 400% each year in your financial model, but it’s hard to actually achieve such growth. Be as realistic as possible.
- Leverage Industry Research: Particularly if there are public companies operating in your industry, you can find their historical growth rates and financial metrics. Find and use these in your financial projections. With regards to metrics, let me give you an example. In the restaurant industry, the average cost of goods sold (COGS) is between 20% and 40%. As such, in nearly every case, if your company is a restaurant, you should project your COGS as being within this range.
- Conduct Further Research: let’s say you expect to hire a marketing manager later this year. Rather than coming up with a cost for that new employee out of thin air, look at job recruiting websites and find the going rate for such a hire in your geographic area. Doing such research will enable you to build a financial model that’s as realistic as possible.
Talking about finances, make sure that you use a good accounting software for your business. It will help you to track your financial transactions from day 1.
Use your appendix to give further credibility to the rest of your plan. In addition to including your full financial projections, include any documentation that supports your claims. For example, you can include full employee resumes, customer lists, patent filings, partnership agreements, etc.
A great business plan identifies the right strategies to build a competitive advantage and grow your business. If funding is required, it paints a picture to investors and lenders that your company knows what it’s doing and will ultimately be successful.
So, be sure to develop your business plan today if you haven’t already done so.
It will be a good idea to start tracking your financial transactions from day-1 of your business. Free accounting software like ProfitBooks can help you with billing, expenses and inventory management.
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