What Is in a Business Plan?
The business plan covers what you intend to do with your business and how it will be done. The process of writing down what is involved in bringing your idea to reality requires dealing with the why, what, who, how, where, when, and how much of your venture. Writing a business plan forces you to take a deep look at your idea and how you will turn it into a business. Doing so helps you recognize areas that need rethinking or support. Your business plan will typically include the following.
Business description—What do you plan to do; why are you starting the venture? What business will you be in? What will you do? Mission Statement: Many companies have a brief mission statement, usually in 30
words or fewer, explaining their reason for being and their guiding principles. If you want to draft a mission statement, this is a good place to put it in the plan, followed by:
Company Goals and Objectives: Goals are destinations—where you want your business
to be. Objectives are progress markers along the way to goal achievement. For example,
a goal might be to have a healthy, successful company that is a leader in customer
service and that has a loyal customer following. Objectives might be annual sales targets
and some specific measures of customer satisfaction.
Business Philosophy: What is important to you in business? To whom will you market your products? (State it briefly here—you will do a more thorough explanation in the Marketing Plan section).
Describe your industry. Is it a growth industry? What changes do you foresee in the industry, short term and long term? How will your company be poised to take advantage of them? Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background experience, skills, and strengths do you personally bring to this new venture?
Legal form of ownership: Sole proprietor, Partnership, Corporation, Limited liability
corporation (LLC)? Why have you selected this form?
Market analysis—Who will be your customers; what do they want from you?
This section is the place for you to discuss the market and your approach to it. In it you describe the market’s character-istics, your target customer’s profile, the competition, and how you plan to gain an advantage over them to create a successful venture.
Your business will be a part of an industry. Describe the industry so readers can understand the market place. Include information on its size, location, history, competitiveness, and profitability as well as its general health. In particular, discuss the current trends in opportunities and threats. This founda-tion will help you prove that a market exists for your product. Your research will be the foundation of your forecasted sales levels and will directly influence how large your operation should be, your marketing plan, and the financing required.
Your efforts to reach your potential market and create a profit will be limited by other businesses involved in the industry. For instance, if the only way to effectively distribute your product is through a large national chain, then that chain will likely use its bargaining power to force you to sell for a lower price, or there may be a slotting fee involved. You will want to discuss forces like this and how you will respond to them. These forces include the following:
• Supplier power (suppliers’ bargaining power and leverage),
• New competitors (the threat of entry of new rivals),
• Substitute products (ease with which buyers can switch to alternative products and/or attempts of outsiders to win buyers over to their alternative products),
• Buyer power (buyers’ bargaining power and leverage),
• Industry rivalry (intensity of rivals’ jockeying for a better market position and a competitive advantage), and
• Government regulations (government influence through regulations and policy).
Target Customer Profile
In writing your market analysis, you will narrow the range of potential customers to those specific ones who are willing and able to buy your product. Although your product or service may meet the needs of a large constituency of poten-tial customers, the goal is to define your target customer as specifically as possible both quantitatively and qualitatively. As you gather your information, you will build a profile of your target customer.
Your research should provide demographic information about who you’ll focus on and the psychographic informa-tion to understand why customers buy products. This will allow you to focus your efforts efficiently. Thorough and detailed research sets a good business plan apart from an average one.
If you are selling to consumers, then consider the following.
• Are your customers local, regional, national, and/or international?
• Are your customers young, old, male, female, high income, low income, etc.?
• Are there behavioral characteristics that differentiate your customers? (for instance price shoppers versus convenience shoppers)
• Are there cultural considerations, social connections, or other personal factors that might shape your customer’s needs, wants, and buying behaviors?
If your customers are primarily businesses, then consider the following.
• Do business customers’ needs differ by industry?
• Do business customers in different regions have different needs?
• Who in the business is involved in the purchasing decision? What is their job function? Who influences their decisions? What is their background and knowledge with respect to your product/service?
• What are company buying policies and procedures, financial constraints, and timing of purchases?
Potential information sources are often publicly available, and you should augment them with interviews with people currently in the industry as well as your own experience. You should also include a statement of the potential opportunities for growth.
In your market analysis, include a review of your specific competitors. All businesses have competitors in some form. Some competitors sell similar products, while others sell a product that serves the same function. Established businesses will likely not take your entry into the market lightly.
First, define who your competitors are, and then profile them. You should assess competitors with a critical eye on their strengths and weaknesses compared to your own. It is important to have an understanding of the operations of your competition so you know how you stand in relative terms. Keep in mind the customer profile you created earlier. In it you discussed the customers’ needs. In this section, address how your competitors fill those needs and what you, in turn, will offer. If a competitor has a strong competitive advantage in an important area, you need to discuss how you will address it. When reviewing competitors, consider what they have as far as:
• Market share,
• Relationship with customers,
• Advertising plan,
• Product/service features,
• Financial strength/cost position, and
• Length of time in business.
Marketing plan—How will you reach your customers?
Marketing plans usually address four areas: product offered, price charged, distribution system, and promotional efforts.
Products and Services
In your business description, you described your product or service in general terms. In this section, describe your product and how it will be used. This is your chance to explain your products/services, identify their features and benefits, and discuss what needs or problems they address in the market.
If you will offer a product, describe what it is, what it does, and its features and benefits. Include pictures, drawings, or technical images if they would help readers get a better
understanding of your product. Discuss its size, shape, color, cost, design, quality, capabilities, technological life-span, and patent protection. You may also wish to explain how it is produced, the materials required, and the type of labor needed.
If you will offer a service, explain what the service is and what need it addresses for your target market. Describe how you will perform the service (whether it is on site or via the Internet, telephone, or some other method), what makes it different, and what materials or equipment are needed. The products you offer will include aspects beyond the product itself, like packaging, product support, warranties, returns, training, and service. Discuss how these supporting features, services, and information will make your business competitive and profitable.
Pricing strategies are based on the perceived value of your products and services, your cost of doing business, your marketing goals, and expected competitive actions. A wide range of pricing strategies are available, from simple rules of thumb to sophisticated approaches that involve carefully measuring the value delivered by your firm to your target market.
As you make your pricing decisions, it will be helpful to think about your cost to produce your product or service. This will provide a “floor” on your price. You should also think about what other products similar to your products sell for in the market.
In the distribution portion of your marketing plan, describe how your product/service will be distributed and over what geographical area. Distribution decisions concentrate on the methods and channels of delivery that will optimize your sales and profits. Logistics management plays an important role in these decisions as firms determine how products will physi-cally move from manufacturer to customer. Issues of cost and efficiency, timeliness, freshness, customer service, customer access, and control all affect your choice of distribution channel.
Describe how your product will be sold, whether through retailers, direct sales, and/or other methods. Discuss any relationships you have developed with distributors or any licensing agreements you have. Describe how your product will reach customers, including specific distribution channels and geographic areas.
Promotional activities are designed to communicate the value of your products and services to your customers, ultimately leading them to purchase your product or service. The range of promotional tools available to you is very broad and may be a combination of advertising, personal selling efforts, and general public relations activities.
An effective promotional plan must focus on your target segment—what is the most effective and efficient way to get your message in front of this group? The second big issue is budget—how much money do you have to invest in promotional activities? Finally, a promotional plan must include a timeline for activities—when should you pursue the individual activities in the plan? Creativity is very important here—a low-cost, creative promotion may be far more effective than an expensive (paid) advertising campaign.
The operating portion of the plan deals specifically with the internal organizational structure, operations, and equipment you will need to operate your venture. You should discuss how the business will be owned and managed, your personnel and physical resource needs, and the legal issues you will have.
Ownership and Management
In this section, describe the ownership of your venture, and explain how the business will be managed on a day-to-day basis. For instance, if your venture will operate as a partner-ship, then explain who the partners are and how manage-ment decisions will be made and disagreements will be resolved. For a business organized as a corporation, describe the composition and function of your board of directors, who the principal owners will be, and how each will be involved in making decisions.
Managers of a venture are responsible for turning an idea into a successful business. In this section, describe what qualifies you and any other managers or advisors to manage and operate the business. You should select managers with an
eye to balancing technical, managerial, and financial skills. Provide a short profile of the relevant training, experience, licensing, or other indicators of ability that you want your key managers to have.
Consultants can help you define and implement your plans.
After describing who the key people are, you will want to describe how you will organize each person’s responsibilities and authorities for the efficient operation of your business. A useful management tool to use is a job description for each position in the venture. A job description defines in advance what the roles of each individual will be and helps in communicating job expectations.
Resources and Production
If you will need to hire employees apart from yourself and other owner/operators, then describe what your personnel needs will be. Have job descriptions (including job responsi-bilities and authorities, compensation, and qualifications) for relevant positions, and describe how you will find and manage the right people.
Outline the methods you will use to produce your product (or conduct your service), especially for a manufacturing venture. Pay particular attention to which actions will be done within your business and how you will you source the inputs you require. Part of this should be estimates of your production costs.
The technical feasibility of producing and distributing the product will be an important aspect of many ventures. Address the availability of inputs and skilled labor, the viability of production technology, the logistics of product production, and the environmental effects of production in your plan.
Facilities and Equipment
Estimate what facilities and equipment you will use and where they will be located in relation to your suppliers and customers. Describe the size and usefulness of the facilities and any modifications needed to start operations and as your business grows.
Describe how your business will be operated in terms of both schedule and procedures. Your schedule may be part-time or full-time, may only operate in certain seasons, may observe certain holidays, or may have extended hours at times of the year.
Operationally, describe how you will manage your business. A manufacturer will want to describe how raw materials will be obtained and transformed into a finished product. A service provider will want to describe where, when, and how the service will be performed. Your operational description should also include your polices and procedures for billing and collections, contract management, inventory control, record keeping, and how you will maintain quality.
Intellectual Property Protection
Protecting your business and its products from imitators should be a concern early in your venture, particularly if you have innovative products. Trademarks and service marks will protect your company’s marketing symbols for products and services.
Every business is subject to local, state, and federal regulation. Outline your plan for complying with relevant regulations.
The financial plan is a necessary part of evaluating a new investment opportunity. With it you develop an estimate of your profit potential. It can even become an operating plan for the financial management of the venture. In this section, describe the current financial status and present forecasts of future financial statements. If you are using the business plan to seek financing, cover the type and amount of financing planned (and its repayment terms) as well as the potential return on investment. The financial portion of your business plan will be examined closely by those interested in joining you, investing in the venture, or lending you money, so it must be thorough. They will want to know how you will use invested funds to create a successful venture.
Forecasts of product demand, revenues, and expenses for new ventures will draw on the market research you conducted. Your projections are only as good as your assumptions, so make sure they are valid and realistic.
Provide projections for two to four years in the future, including:
1. Forecasted income (monthly for first two years, then by quarter or year thereafter),
2. Forecasted cash flows by month (monthly for first two years, then by quarter or year thereafter),
3. Forecasted balance sheet for all years (year-end), and
4. Breakeven analysis.
Many small businesses will have very limited revenue for the first two years of operation. Most small businesses will not make a real profit for at least two to three years. Without significant financial reserves, your venture is likely to fail. You can use a convincing business plan to gain capital needed to get beyond the initial difficult years. If the purpose of your plan is to seek funding, request those funds, and describe how they will be used.
As with any venture, there will be risks. Identify and describe the most threatening risks to your success. Outline the activities you will pursue to manage the risks.