A business plan is really simply-a document that describes what you plan to do and how you plan to do it. There are multiple reasons to write a business plan. You could write one to understand how you are going to build or change operations of an existing business. You could write it as an aid in a new business venture. Perhaps the most commonly used reason for writing a business plan is to demonstrate to investors that you have done all the research and ask and answered all of the important questions relating to the development, operation and exit strategy of a project for which you are seeking investment.
What's in a business plan?
A Business plan typically covers at least these six key components:
- Executive summary
- Business description
- Market strategies
- Competitive analysis
- Operations and management plan
- Financial factors
No matter what the reason you write it, business plans take a lot of time to do properly as while they are being written, it is inevitable that a great deal of research and brainstorming must be done in order to fully lay out the plans and objectives of the business effort.
If you are wanting to write a business plan, you can do so yourself. Be prepared to dig very deep into the concepts surrounding the business. We recommend that while you are researching the document considering how you can approach your business ideas differently than how others are doing it. You will want to spend the largest amount of time focusing on your revenues, costs and financial projections. Some of the plans we have worked on have entailed literally hundreds of hours of research just to put the financial projections in place.
You will also want to spend the next largest amount of time working on your competition research to make sure you completely understand what others are doing and what is making them successful in the development of their efforts, or what is causing them to fail.
At the end of the plan, and perhaps the most useful part of the business plan, is you will have a clear determination of whether you should even do the business. We have had it happen on more than one occasion that the development of the business plan demonstrated to us that the business should be developed in a completely different way than we had envisioned. We have also had it happen where the process of writing the plan and the conclusions at the end of the plan demonstrated to us that the business simply is not viable. This is also success… as using the plan to determine this will help to avoid losing large amounts of your own – or investors – capital – and even worse – wasting your time on something that has no chance of success.
We have put here a few links for you for resources that may help you to write your own business plan. We do not vouch of the applicability or usefulness of any of these materials. We simply want to help you on your path towards your own success. Don’t forget, if you get stuck, feel free to give us a call.
What is an executive summary?
An executive summary is the brief introduction to a business plan. It should describe your business, the problem that it solves, your target market, and financial highlights.
What should an executive summary include?
Who you are. Start with your business’s name, location, and contact information.
What you offer and the problem your business solves. Include a brief description of the product or service you offer and why it’s necessary. Your business doesn’t need to serve a larger social problem, but it should address a need or opportunity in the market.
Your target market. Sometimes the product itself defines the market, such as “Peoria’s best Thai food,” or “Mini Cooper dashboard accessory.” If not, then a brief description of the target market.
Business plan purpose. Say whether you’re seeking investment or trying to secure a bank loan. An executive summary is only really necessary when you are sharing your business plan with outsiders.
Size or scale. For example, with an existing company, that information might be as simple as adding recent annual sales or number of employees to the basic company information in the first bullet here. For a startup, it might be a brief description of aspirations, such as a sales goal for the next year or three years from now. I often recommend a simple highlights chart, a bar chart with sales and gross margin for the next three years.
Critical details. Mention any defining details that would matter to the person that will ultimately read the summary–like that the founders are all MBA students at the local university, or that your business has been awarded a prestigious development grant. Remember, some readers will only look at the summary of your business plan.
What is a business description?
A business description provides an overview of key aspects about your business, like what you do and what makes your business original. Anyone reading your company description should have no problem understanding the scope of your business idea.
Lenders and investors should see how your business has a place in the market, as well as its benefits to future customers.
Your business description should be regularly updated as your business expands or changes.
Describe your business
You need to know how to pitch to investors and lenders to captivate their interest. Your information should answer who, what, where, when, why, and how right off the bat.How to Write a Company Description for a Business Plan visual
Who are you? What is the name of your business? You want to verify that the name of your business is clear in the business description of your business plan. And, include your name because lenders and investors want to know the entrepreneur who started the business.
Who is your target customer? When you describe your business, make sure you know who you appeal to. If you don’t know your target customer, there’s a chance that nobody will have interest.
What is your product or service? If lenders and investors can’t understand what you’re selling or how it’s significant, they might pass on your concept. Be clear when you tell lenders and investors about your business.
What are your goals for your business? Set realistic short-term and long-term goals. If you plan on selling $20,000 worth of products by the end of the second month after opening, include the goal.
Where is your business located? If you are currently operating your business, you need to say its location. Likewise, if you are opening a new business, make sure you state where you want it to be located.
When will you implement your business plan and see results? Say when you want to open your business (or when you opened it). And, include when you plan to achieve your goals. Once your goals are achieved, what is your exit strategy for small business? Do you know how to turn your growing business into a profitable venture?
Why would potential customers want to buy from you? Explain why you are set apart from the competition. This is where you can describe your business’s originality. Lenders want to know why consumers would want to make a purchase at your small business instead of a competitor’s.
You also need to include your business’s mission statement. A mission statement helps set you apart from competition and explain why your business is unique.
What type of business structure will you form? Will you function as a sole proprietorship, limited liability corporation, partnership, or corporation? Explain why you chose your business structure. Mention the small business advisor help you have enlisted, like a business attorney, since each structure has different registration requirements, regulations, and liabilities.
Do you know how to interview and hire employees? Further, do you know how you’re going to pay your employees? Do you know how to do payroll on your own, or will you use payroll software?
And, how do you plan to achieve the goals you set for your business? Explain what steps you will take to make your business a success.
Marketing Plan Component of Your Business Plan
The marketing portion of a business plan addresses four main topics: product, price, promotion and place.
A business plan is the blueprint for taking an idea for a product or service and turning it into a commercially viable reality. The marketing portion of the business plan addresses four main topics:
Product: What is the good or service that your business will offer? How is that product better than the competition? Why will people buy it?
Price: How much can you charge? How do you balance sales volume and price to maximize income?
Promotion: How will your product or service be positioned in the marketplace? Will your product carry a premium image with a price to match? Will it be an inexpensive, no-frills alternative to similar offerings from other businesses? What type of advertising will you use? When will ads be run? How will the product be packaged?
Place: Which sales channels will you use? Will you sell by telephone or will your product be carried in retail outlets? Which channel will let you economically reach your target audience?
The marketing portion of a business plan addresses how you will get people to buy your product or service in sufficient quantities to make your business profitable. It consists of:
Market analysis, which assesses the market environment in which you compete, identifies your competitors and analyzes their strengths and weaknesses, and identifies and quantifies your target market.
Marketing strategy, which explains how you will differentiate your business from your competitors’ businesses and what approach you will take to get customers to buy from you.
Marketing and sales plans, which specify the nature and timing of promotional and other advertising activities that will support specific sales targets.
How do you determine if there are enough people in your market willing to purchase what you have to offer at the price you need to charge to make a profit? The best way is to conduct a methodical analysis of the market you plan to reach. The market analysis presents your conclusions regarding external market factors that will affect your business. It examines the totality of the business environment in which you will compete.
Topics addressed in the market analysis include the existence and type of competitors, the characteristics of your target customers, market size, distribution costs, trends in your industry and in the market in general. Much of the information that will be included in the market analysis will be derived directly from the SWOT analysis that you performed early on in the planning process. The purpose of the market analysis is to set the stage for presenting your marketing strategy. That strategy sets forth your plan for successfully competing in your selected market.
The marketing strategy portion of your business plan presents the approach you plan to take to provide products or services to your customers. It explains, at a high level, what you are going to do to get your customers to buy in the desired quantities. Someone who reads your market strategy should come away with a “big picture” view of how your business will present itself to the market segment in which you will compete. You should assess both the merits and the risks of your enterprise in the marketing strategy.
In the marketing strategy section of your plan, you’ll address issues such as:
Identification of your target buyers.
The market segment in which you’ll compete.
The reasons why the product or service you offer is unique.
Your pricing philosophy.
Your plans for market research.
Your ongoing product or service development plans.
You’ll find it useful to keep in mind the 4 Ps of marketing (product, price, promotion and place) as you define the scope of your marketing strategy. Be sure to stress what is unique about your business.
Marketing and Sales Plans
Your marketing and sales plan explains how you will reach your targeted customers and how you will effectively market your product or service to those customers. For example, the marketing plan specifies the types of advertising you will use and the timing of those advertisements. In essence, the marketing plan takes the marketing strategy that you developed to a tactical level. It sets forth the specific steps you will take to sell your product or service and provides a timetable for those actions to occur.
For example, how will you advertise your business? If you decide on radio ads, which stations will you choose and at what times of day will you run ads? Can you afford enough repetition of the ad to make it memorable? How will you assess whether you’re getting your money’s worth from the radio spots?
The marketing and sales plan usually includes a calendar that ties marketing and sales activities to specific operational events. For example, an advertising campaign may begin some months before a new product is ready to be sold. As the date of the new product introduction approaches, the ad campaign would be stepped up. Once the new product hits the market, additional advertising is used to support specific sales objectives.
Sales plans. An integral component of any business plan is a strategy for getting your product or service to your targeted customers. There are many ways to reach your customers. One challenge in developing your business plan is selecting the sales channel that is most effective. For instance, if you’re in a business where you provide services personally, your participation in the sales process can be extensive.
Many good home improvement contractors make all their sales pitches in person, and they count on referrals from satisfied customers to generate new sales prospects. It would be difficult to rely on a separate sales organization when the essence of the job includes creating estimates and selling the prospective customer on your ability to deliver what the customer wants.
In contrast, if your business deals in the sale and production of large quantities of product with little associated service, you will face a different challenge. Customers may not know or care who you are.
A coffee distributor roasts and grinds coffee for resale to a number of local convenience stores. The stores brew and sell the coffee by the cup. The people who buy and drink the coffee are the end users of the product. But the convenience stores are the target market for the distributor’s product. The sales plan must address how to reach them, as intermediaries between the producer and the end user.
Sales plans are based on the particular mix of goods and services that you plan to offer and on the way you intend to reach potential customers. If you are going to have a sales force of some kind, be sure you know what you will expect them to do. When making hiring decisions, do your best to find people who can do what you want. If you will be the entire sales force, try to quantify the activities and time involved.
For example, a remodeling contractor won’t spend all of the time actually working on houses. In addition to the back office tasks, the contractor will also spend time meeting with potential customers, discussing the job, preparing and submitting bids or estimates, etc. These are vital sales activities and are essential to keeping work lined up.
The Competitive Analysis section of your business plan is devoted to analyzing your competition–both your current competition and potential competitors who might enter your market.
Every business has competition. Understanding the strengths and weaknesses of your competition–or potential competition–is critical to making sure your business survives and grows. While you don’t need to hire a private detective, you do need to thoroughly assess your competition on a regular basis even if you only plan to run a small business.
In fact, small businesses can be especially vulnerable to competition, especially when new companies enter a marketplace.
Competitive analysis can be incredibly complicated and time-consuming… but it doesn’t have to be. Here is a simple process you can follow to identify, analyze, and determine the strengths and weaknesses of your competition.
Profile Current Competitors
First develop a basic profile of each of your current competitors. For example, if you plan to open an office supply store you may have three competing stores in your market.
Online retailers will also provide competition, but thoroughly analyzing those companies will be less valuable unless you also decide you want to sell office supplies online. (Although it’s also possible that they–or, say, Amazon–are your real competition. Only you can determine that.)
To make the process easier, stick to analyzing companies you will directly compete with. If you plan to set up an accounting firm, you will compete with other accounting firms in your area. If you plan to open a clothing store, you will compete with other clothing retailers in your area.
Again, if you run a clothing store you also compete with online retailers, but there is relatively little you can do about that type of competition other than to work hard to compete in other ways: great service, friendly salespeople, convenient hours, truly understanding your customers, etc.
Once you identify your main competitors, answer these questions about each one. And be objective. It’s easy to identify weaknesses in your competition, but less easy (and a lot less fun) to recognize where they may be able to outperform you:
What are their strengths? Price, service, convenience, extensive inventory are all areas where you may be vulnerable.
What are their weaknesses? Weaknesses are opportunities you should plan to take advantage of.
What are their basic objectives? Do they seek to gain market share? Do they attempt to capture premium clients? See your industry through their eyes. What are they trying to achieve?
What marketing strategies do they use? Look at their advertising, public relations, etc.
How can you take market share away from their business?
How will they respond when you enter the market?
While these questions may seem like a lot of work to answer, in reality the process should be fairly easy. You should already have a feel for the competition’s strengths and weaknesses… if you know your market and your industry.
To gather information, you can also:
Check out their websites and marketing materials. Most of the information you need about products, services, prices, and company objectives should be readily available. If that information is not available, you may have identified a weakness.
Visit their locations. Take a look around. Check out sales materials and promotional literature. Have friends stop in or call to ask for information.
Evaluate their marketing and advertising campaigns. How a company advertises creates a great opportunity to uncover the objectives and strategies of that business. Advertising should help you quickly determine how a company positions itself, who it markets to, and what strategies it employs to reach potential customers.
Browse. Search the Internet for news, public relations, and other mentions of your competition. Search blogs and Twitter feeds as well as review and recommendation sites. While most of the information you find will be anecdotal and based on the opinion of just a few people, you may at least get a sense of how some consumers perceive your competition. Plus you may also get advance warning about expansion plans, new markets they intend to enter, or changes in management.
Keep in mind competitive analysis does more than help you understand your competition. Competitive analysis can also help you identify changes you should make to your business strategies. Learn from competitor strengths, take advantage of competitor’s weaknesses, and apply the same analysis to your own business plan.
You might be surprised by what you can learn about your business by evaluating other businesses.
Identify Potential Competitors
It can be tough to predict when and where new competitors may pop up. For starters, regularly search for news on your industry, your products, your services, and your target market.
But there are other ways to predict when competition may follow you into a market. Other people may see the same opportunity you see. Think about your business and your industry, and if the following conditions exist, you may face competition does the road:
The industry enjoys relatively high profit margins
Entering the market is relatively easy and inexpensive
The market is growing–the more rapidly it is growing the greater the risk of competition
Supply and demand is off–supply is low and demand is high
Very little competition exists, so there is plenty of “room” for others to enter the market
In general terms, if serving your market seems easy you can safely assume competitors will enter your market. A good business plan anticipates and accounts for new competitors.
Now distill what you’ve learned by answering these questions in your business plan:
Who are my current competitors? What is their market share? How successful are they?
What market do current competitors target? Do they focus on a specific customer type, on serving the mass market, or on a particular niche?
Are competing businesses growing or scaling back their operations? Why? What does that mean for your business?
How will your company be different from the competition? What competitor weaknesses can you exploit? What competitor strengths will you need to overcome to be successful?
What will you do if competitors drop out of the marketplace? What will you do to take advantage of the opportunity?
What will you do if new competitors enter the marketplace? How will you react to and overcome new challenges?
The Competitive Analysis section for our cycling rental business could start something like this:
Our nearest and only competition is the bike shops in Harrisonburg, VA. Our next closest competitor is located over 100 miles away.
The in-town bike shops will be strong competitors. They are established businesses with excellent reputations. On the other hand, they offer inferior-quality equipment and their location is significantly less convenient.
We do not plan to sell bicycles for at least the first two years of operation. However, sellers of new equipment do indirectly compete with our business since a customer who buys equipment no longer needs to rent equipment.
Later, when we add new equipment sales to our operation, we will face competition from online retailers. We will compete with new equipment retailers through personalized service and targeted marketing to our existing customer base, especially through online initiatives.
By offering mid- to high-end quality equipment, we provide customers the opportunity to “try out” bikes they may wish to purchase at a later date, providing additional incentive (besides cost savings) to use our service.
Offering drive-up, express rental return services will be seen as a much more attractive option compared to the hassle of renting bikes in Harrisonburg and transporting them to intended take-off points for rides.
Online initiatives like online renewals and online reservations enhances customer convenience and positions us as a cutting-edge supplier in a market largely populated, especially in the cycling segment, by customers who tend to be early technology adapters.
Renting bikes and cycling equipment may be perceived by some of our target market as a commodity transaction. If we do not differentiate ourselves in terms of quality, convenience, and service, we could face additional competition from other entrants to the market.
One of the bike shops in Harrisonburg is a subsidiary of a larger corporation with significant financial assets. If we, as hoped, carve out a significant market share, the corporation may use those assets to increase service, improve equipment quality, or cut prices.
While your business plan is primarily intended to convince you that your business makes sense, keep in mind most investors look closely at your competitive analysis. A common mistake made by entrepreneurs is assuming they will simply “do it better” than any competition.
Experienced businesspeople know you will face stiff competition: showing you understand your competition, understand your strengths and weaknesses relative to that competition, and that you understand you will have to adapt and change based on that competition, is critical.
And, even if you do not ever plan to seek financing or bring in investors, you absolutely must know your competition.
The Competitive Analysis section helps you answer the “Against who?” question.
Develop an Operations Plan that will serve your customers, keep your operating costs in line, and ensure profitability. Your ops plan should detail strategies for managing, staffing, manufacturing, fulfillment, inventory… all the stuff involved in operating your business on a day-to-day basis.
Fortunately, most entrepreneurs have a better handle on their operations plan than on any other aspect of their business. After all, while it may not seem natural to analyze your market or your competition, most budding entrepreneurs tend to spend a lot of time thinking about how they will run their businesses.
Your goal is to answer the following key questions:
What facilities, equipment, and supplies do you need?
What is your organizational structure? Who is responsible for which aspects of the business?
Is research and development required, either during start-up or as an ongoing operation? If so, how will you accomplish this task?
What are your initial staffing needs? When and how will you add staff?
Who will you establish business relationships with vendors and suppliers? How will those relationships impact your day-to-day operations?
How will your operations change as the company grows? What steps will you take to cut costs if the company initially does not perform up to expectations?
Operations plans should be highly specific to your industry, your market sector, and your customers. Instead of providing an example like I’ve done with other sections, use the following to determine the key areas your plan should address:
Location and Facility Management
In terms of location, describe:
The type of building you need
The space you need
Power and utility requirements
Access: Customers, suppliers, shipping, etc.
Specialized construction or renovations
Interior and exterior remodeling and preparation
Sales and customer service
Receiving and Delivery
Maintenance, cleaning, and re-stocking
Licenses and permits
Environmental or health regulations
Patents, trademarks, and copyrights
Breakdown of skills required
Recruiting and retention
Policies and procedures
Anticipated inventory levels
Seasonal fluctuations in demand
Back-up suppliers and contingency plans
Credit and payment policies
Sound like a lot? It can be–but not all of the above needs to be in your business plan.
You should think through and create a detailed plan for each category, but you won’t need to share the results with the people who read your business plan
Working through each issue and developing concrete operations plans helps you in two major ways:
If you don’t plan to seek financing or outside capital, you can still take advantage of creating a comprehensive plan that addresses all of your operational needs.
If you do seek financing or outside capital, you may not include all the detail in your business plan–but you will have answers to any operations questions at your fingertips.
Think of Operations as the “implementation” section of your business plan. What do you need to do? How will you get it done? Then create an overview of that plan to make sure your milestones and timeline make sense.
That way the operations section answers the “How?” question.
Numbers tell the story. Bottom line results indicate the success or failure of any business.
Financial projections and estimates help entrepreneurs, lenders, and investors or lenders objectively evaluate a company’s potential for success. If a business seeks outside funding, providing comprehensive financial reports and analysis is critical.
But most importantly, financial projections tell you whether your business has a chance of being viable–and if not let you know you have more work to do.
Most business plans include at least five basic reports or projections:
Balance Sheet: Describes the company cash position including assets, liabilities, shareholders, and earnings retained to fund future operations or to serve as funding for expansion and growth. It indicates the financial health of a business.
Income Statement: Also called a Profit and Loss statement, this report lists projected revenue and expenses. It shows whether a company will be profitable during a given time period.
Cash Flow Statement: A projection of cash receipts and expense payments. It shows how and when cash will flow through the business; without cash, payments (including salaries) cannot be made.
Operating Budget: A detailed breakdown of income and expenses; provides a guide for how the company will operate from a “dollars” point of view.
Break-Even Analysis: A projection of the revenue required to cover all fixed and variable expenses. Shows when, under specific conditions, a business can expect to become profitable.
It’s easy to find examples of all of the above. Even the most basic accounting software packages include templates and samples. You can also find templates in Excel and Google Docs. (A quick search like “google docs profit and loss statement” yields plenty of examples.)
Or you can work with an accountant to create the necessary financial projections and documents. Certainly feel free to do so… but I’d first recommend playing around with the reports yourself. While you don’t need to be an accountant to run a business, you do need to understand your numbers… and the best way to understand your numbers is usually to actually work with your numbers.
But ultimately the tools you use to develop your numbers are not as important as whether those numbers are as accurate as possible–and whether those numbers help you decide whether to take the next step and put your business plan into action.
Then Financial Analysis can help you answer the most important business question: “Can we make a profit?”
Some business plans include less essential but potentially important information in an Appendix section. You may decide to include, as backup or additional information:
Resumes of key leaders
Additional descriptions of products and services
Examples of marketing and advertising collateral
Photographs of potential facilities, products, etc
Backup for market research or competitive analysis
Additional financial documents or projections
Keep in mind creating an Appendix is usually only necessary if you’re seeking financing or hoping to bring in partners or investors. Initially the people reading your business plan don’t wish to plow through reams and reams of charts, numbers, and backup information. If one does want to dig deeper, fine–he or she can check out the documents in the Appendix.
That way your business plan can share your story clearly and concisely.
Otherwise, since you created your business plan… you should already have the backup.
And one last thing: always remember the goal of your business plan is to convince you that your idea makes sense–because it’s your time, your money, and your effort on the line.