An Introduction to Business Plans
Creating a proper business plan is important to the success of your business. Creating a clear direction and understanding of your customers as well as your competition will have a direct bearing on your business success. Time spent in creating a proper, well-thought-out business plan will not only provide you insight into your new or existing business, but will also assist you in understanding finance issues involved in your business operation.
Please note that while each business plan is unique to each individual business, the raw elements are the same. Consider the plan with an objective eye. It is natural to allow emotion and excitement to color your business hopes, but objectivity and honesty are key.
- Why Should You Write a Business Plan?
- Business Plan Components
- Executive Summary
- The Product or Service
- The Market
- Your Marketing Plan
- Who is Your Competition?
- Daily Operations
- Financial Data
- Supporting Documentation
Why Should You Write a Business Plan?
At ABA, we believe a firm business plan is crucial to your success. Why should you write a business plan?
- It will allow you to look at your objectives and plans with a critical eye.
- It will allow you to envision areas of growth and areas of success.
- It will help define your purpose.
- It will help you understand your competition and feasibility in the marketplace.
- It will help you define your management structure and envision day-to-day operations.
- It will help provide the basis for your financing proposal.
In this process, you will focus to identify and analyze your strengths and weaknesses. It is a fact that many business fail within the first few years, but your chances of success will increase greatly with a well constructed business plan.
As the owner or potential business owner, you should create your business plan yourself, and be honest in the process.
Business Plan Components
The Executive Summary
This is a summary of your plan. It should entice a viewer to dig into the plan and read on. It should be persuasive, and be no longer than 2 pages. Be sure to include the following:
- A brief description and history of the business
- Descripition of services or products
- Description of your competitive market — where will you compete?
- A discussion of your competitive advantages, and how you will succeed in the marketplace. Be persuasive! Convince the reader with facts!
- Projections for growth
- Description of your company management
- Funding essentials, including funds needs, distribution, use, etc…
The Product or Service
In a nutshell, what product or service will you offer? This does not need to be a technical explanation, but rather told in layman’s terms to allow a more general reader to understand. Consider your competition when creating this section. What are your advantages? How are you better than they are?
Other questions to consider: Are there any trademarks to discuss? Patents? Confidentiality Agreements? Are there competing products or services? Special needs, such as material needs or the need to appease specific regulations?
Other areas to cover here:
- Can you achieve a good profit yet remain competitive in the marketplace?
- How are your offerings unique?
- What is your competitive advantage?
- Is your product or service currently on the market? Or will you need time to roll it out?
Discuss and include your marketing research reports here. Define the need for your product or service. Discuss your current customers, if you have any, and their interaction with your product or service. Be sure to include the following here:
- A general description of your market
- Define your niche in that market and the size of that niche
- Define how your product or service fills that niche
- Is this niche set to grow? How so?
- How can you capture a percentage of that niche growth?
- Discuss your pricing in relation to your competition
Learn more about the marketing research process with these resources:
Your Marketing Plan
How will you reach your market? How will they know you are ready and available to provide your product or service? A marketing plan, along with pricing, is important to identify costs, not only for yourself, but for potential investors.
Be aware of the marketing plans of your competitors, and discuss them. Discuss how their plans are or are not working, and how your plan will improve on those. This is the time for a unique approach coupled with more traditional forms of advertising. Consider these marketing channels:
- Web sites and search engine optimization
- Pay-per-click campaigns
- Phone sales
- Television commercials
- Radio ads
- Direct mail
- Trade shows
- Print materials
- Word of mouth
- An in-house sales force
Also discuss in detail your product or service delivery method once you do achieve the desired level of marketing success.
Who is Your Competition?
You’re going head-to-head in the marketplace with existing businesses. Who are they? How do they provide their product or service? How are you different from them? How much market share do they command? How do they currently market? Are they successful? What are their strengths and weaknesses? Is there room for YOU in this marketplace?
There are many questions to consider in this section. Be certain to be thorough.
Here is some of the nitty gritty on how you will bring your project to fruition. Consider the following questions:
- What resources will you need?
- What are your manufacturing needs?
- How will you acquire staff, equipment, and operating location?
- Will you need outside vendors? If so, whom?
- Will you roll out your plan in stages? Or all at once?
- What will each portion cost?
Be sure to include the financial needs and impact of each area of requirement in this section. Be very detailed.
Experience in the marketplace with your proposed product or service can be a powerful advantage. Potential investors may base decision solely on this area of your plan. If you’ve proven experience in the industry of your product or service, you’ll fair much better with investors. The experience does not necessarily need to lie directly with you, as the owner. It may lie with your hired management team.
Focus on the positive aspects of your chosen team. Describe their strengths in the area of your product or service offering. However, do not ignore the weaknesses. Discuss them, but desribe how you will overcome those weaknesses.
Consider the following:
- What is the personal history of your team? Business backgrounds? Education? Past work experience?
- Has your team worked in a similar industry? For how long? Describe those experiences.
- Who will perform what duties, and how will you organize operations?
- What are the required salaries and benefits for each member?
ABA advises you to discuss your financial plans with a professional advisor or accountant. Be sure to cover all information from daily operations, startup costs, ongoing fees, and more. This section should include:
- Funds required to start the business
- Anticipated funding over the next two to five years
- Use of funding
- A timeline for funding
All of these initial financing elements should coincide with your business goals and visions as stated in other sections of the business plan, including the financing necessary to cover operations, marketing, and promotion.
Include the following financial documents:
- Break-Even Analysis
- Balance Sheet
- Projected Profit and Loss Statement
- Projected Cash Flow Statement
Include month-by-month details for your cash flow projections and income statement for the first year of business. Once established, show quarterly information for two more years.
The financial plan also includes the startup budget and operations budget, indicating what you need to launch the business and how much you require to keep the business going on an ongoing basis. This section includes: salaries, wages, insurance costs, accounting costs, equipment costs, legal fees, taxes, cost of goods sold, advertising and promotional expenses, and all other pertinent costs in each of your two budgets.
Don’t forget to include any and all documents that support your plan and back up everything stated above. While the following is not a complete list, it should help you get started thinking in terms of what you will need to support the business plan:
- Legal Documentation
- Tax Information
- Credit information
- Quotes or Estimates
- Letters of Intent from prospective customers
- Letters of Support from personal references
- Leases or Buy/Sell Agreements
- Census/Demographic data
Present your business plan in a professional binder. Update it as you reach specific goals. Refer to it often, and never lose sight of these goals that you set forth for yourself.