A terrific idea and the willingness to work to make it succeed are cornerstones of a great business; however, a great business plan is the cement that holds the foundation of your business or potential business together. Simply put, a business plan is a road map for your business. When you put your business plan down on paper, you are laying a solid foundation for the growth and success of your business. A written business plan not only helps business owners to have a guide in how to grow their business; a written business plan is also a requirement if your business will need to borrow money from a lending institution or from private investors.
Before Starting Your Business
The U.S. government’s Small Business Administration has a website made for the sole purpose of helping Americans run their own businesses. The SBA’s site contains all that you need to know about starting your own business. This valuable site can help you with a range of details concerning your own business, from how to register your business with the government to sharing laws about importing and exporting. If you’re a new business owner, or considering starting your own business, like many of our featured Entrepreneur Success Stories guests have, you’ll likely want to take advantage of this valuable resource to answer some of the questions you might have about starting and owning your own business.
In my last post, I talked about 5 things you should do before you start a business. Today, we’re going to go over how to write a business plan for your business. As I mentioned earlier, a business plan is a guide, or a road map, for your business.
The Executive Summary
As you write your business plan, you’ll want to include an Executive Summary. According to the SBA, an Executive Summary is described this way:
The executive summary is often considered the most important section of a business plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.
The executive summary should highlight the strengths of your overall plan and therefore be the last section you write. However, it usually appears first in your business plan document.
As you write your business plan, the Executive Summary will be your chance to “sell” your business. Your Executive Summary will contain your mission statement, your company information and a brief summary of the services/products you will provide. In essence, your Executive Summary will be a summary of what you write in the rest of your business plan. This is why the SBA recommends that although your Executive Summary will be the first to appear in your business plan, that you should write it last.
Your Company Description will appear after your Executive Summary in your business plan. Your Company Description will:
- Explain the nature of your business and the marketplace you hope to satisfy
- Tell the reader how your business and its services meets the needs of your target market
- Lists the specific types of consumers or businesses that your company will serve
- Explains what specific edge your business will have that will make it succeed against its competitors
In short, the Company Description explains what your business will have to offer, who it will serve, and how it will benefit its clients better than other similar companies. Your Company Description is your chance to give a quick yet inviting sell to potential investors.
Next you’ll want to include your Market Analysis. Your Market Analysis presents a picture of your industry, your market knowledge of that industry, and any research findings you may have completed of your industry and its market. Your Market Analysis should include:
- Your business industry’s size and growth rate. Explain the nature of your industry, and include facts about your industry’s potential to continue to thrive.
- Information about your target market. Tip: don’t make your target market too big. Narrow it down to a field that has a big enough base that there is room for your business, but not so big of a market share that you’ll get lost in the crowd.
- The distinguishing characteristics of your company. Here you’ll share the vital needs of your potential customers and how you can fill a missing void in what they need. You’ll also share the demographics of this group, where they are located and any seasonal or cyclical trends within the group.
- The size of your primary target market. Here you’ll share data-driven facts on the size of your primary target group of potential clients, as well as the forecasted market growth for this group. In short, you’ll be looking to prove that your business has a target market that will sustain its success and growth over a long period of time. You’ll also share what percentage of that market share you expect to gain, and give logical reasons behind your calculations.
- Your pricing structure, gross margins and discounts you might plan to use. In this paragraph, you’ll explain what your price structure is, why you think your price structure is competitive and what types of profits you can reasonably expect. If you’ve done any research studies to back up these numbers, include that as well.
- Your competitive analysis. This section will identify your competitors by product line or service, and by market segment. Here you’ll share your competitors’ market share, strengths and weaknesses, how your competitors may hinder you in the market, and your plans for overcoming those barriers.
- Any regulatory restrictions that impact your business. Here you’ll share any regulatory requirements that affect your business and how you’ll ensure compliance, as well as the financial impact of those regulatory requirements.
Organization and Management
This section of your business plan will include details about the ownership of your company, your company’s organizational structure, legal structure (i.e. is it a C corp? An LLC?) information and qualifications of any board members, and profiles of your management team.
The goal of the Organization and Management section of your business plan is to explain who is assigned to do what in your business, what their qualifications are and what they will bring to your business to help ensure it succeeds.
You’ll also want to share the proposed salary and benefits package for each member of your management team, as well as including an organizational chart.
Make sure your Organization and Management section includes very specific information about each management team member and board of directors’ members, explaining their specific experiences, strengths and workforce history that will make them a valuable asset to your team.
Service/Product Line Section
The next step in creating your business plan will be to describe the service or product line that you intent to provide to clients. More precisely, your service or product line section will explain in detail the specific benefits of your product or service from a consumer standpoint.You should also explain in this section how your product or service meets your customers’ needs, what advantages your product or service has over your competitors’ products or services, and last but not least, what stage of development your product or service is in.
In addition, be sure to include any patent or patent pending information for your product, as well as including a complete description of any research and development work that has been performed on your product or is currently being performed on your product.
Sales and Marketing
After completing the work on your service/product line section, you’ll work on the sales and marketing section of the business plan. The sales and marketing strategy for your business plan should be thorough and detailed. For the marketing portion of your plan, you should provide details on the following four marketing strategies:
- Market penetration, which explains how you plan to successfully penetrate your target market
- Growth strategy, which details which how you plan to ensure continued growth of your business, both from an internal and an external perspective
- Distribution strategy, which outlines which channels of distribution you’ll use to market and sell your product or service
- Communication strategy, which details how you plan on reaching your target market/potential customers
Your sales strategy should have different components to it as well. The two main components that should be included in your sales strategy are:
- An outline of your sales force strategy, which explains how you plan to implement your sales force. The sales force strategy tells what types of sales representatives you’ll use (internal or independent), how many sales reps you plan to recruit, and what type of recruitment strategies you’ll use to develop your sales team. This part of your plan will also include your techniques for training your sales force, and information about how you plan to compensate your sales force.
- An outline of your planned sales activity. This part of your business plan will detail what process your sales team will use to determine and reach potential customers, and will also share in detail what your goals are for number of customers contacted per day, percentage of successful sales from that number, and expected average dollar size sale from each customer. In layman’s terms, your planned sales activity section will give a detailed plan of who you plan to sell to, how you plan to reach them, and how much you plan on selling them in a given time period. These types of detailed sales plans and numbers show potential investors that you’ve done extensive research on your target market and that you have a detailed plan for convincing your target market that they need your product.
If you are seeking monetary investments for your business, this part of your business plan will outline the specifics of your funding request. A professional and complete funding request will include information such as:
- Your current funding request or expectation
- A 5-year projection for any additional funding
- A detailed plan of use for any funding you receive, outlining purposes such as working capital, debt payoff or business acquisition capital
- Any future financial plans that are vital to the health of the business, such as potential buyout of the business, acquisition of another business, plans to sell the business, etc.
A potential business investor wants to have a clear picture of where any money invested in your business will go before that investor hands over a check. For that reason, be sure that your funding request is clear, concise, honest and thorough. Including any documented historical and prospective financial data will also help potential investors to make an informed decision as to whether or not they want to help fund your venture.
Depending on the length of time your business has been in operation, your Financial Projections section will look different. For a new business venture, the Financial Projections section will include prospective financial data that details clear and accurate estimates for sales, expenses, profit and loss over a projected five-year period.
For an established business, the Financial Projections section should include not only the five-year projected financials, but detailed historical financials on sales, expenses, profits and losses as well. It’s important too, when asking potential investors for funding, that your Financial Projections section of your business plan has numbers that are consistent with the amount of money your business wishes to borrow. In other words, if you expect to borrow a million dollars for your business, and your sales over the last 5 years have consistently landed at the $50,000 mark, you might raise some red flags with potential investors. When determining the amount of money you wish to borrow, be sure to present reasonable and consistent numbers to potential investors.
Final Tips for Making your Business Plan Stand Out From the Crowd
In order to make your business plan as appealing as possible to potential investors, consider implementing the following tips:
- Make sure your business plan is professional and well-written
- Be clear and concise about what your business has to offer, where you want your business to go and how it’ll get there
- Have thorough research to back up your marketing, sales and financial projections
- Be sure to establish well how your business can outperform the competition in servicing customer needs
A well-written business plan will take time, research and a lot of hard work; however, if your business idea is as valuable to potential clients as you think it is, taking the time to create a well-written business plan will be worth all of the effort you put into it.