Starting a Business: Creating a Business Plan
Even if you have your business plan all figured out in your head, it is still better to write down your business plan. The purpose of a business plan is as follows.
Developing tool. A business plan helps you develop ideas about how you should operate your business. It gives you a chance to “make mistakes on paper” and allows you to examine the company from all perspectives such as marketing, financing and operations.
Communication tool. A business plan helps you communicate with the lenders or investors. Lenders or investors are interested in the financial aspects of your business and most lenders or investors won’t invest into a business without seeing a business plan.
A business plan also helps communicate your ideas and vision to your managers.
Assessment tool. At the end of each period, you could track your actual business performance against your plan.
Business Plan Structure
Business plans follow a standardized formal structure that reviewers will expect in any submissions. The business plan should be divided into the following sections.
- Table of Contents
This serves the same function as a table of content for a book. It doesn’t need to show the exact numbered pages so that it’ll be easier for you to add pages or sections during subsequent updates.
- Executive Summary
This is the summary of your entire business plan.
- Company Profile
This section is a general description of your company and should be no more than a few pages. You should describe:
- the type of business (retailer, manufacturer or service provider).
- your target customer.
- the type of products or services you sell to your customers and how you’ll do it.
- where you are located and where you’ll market to (locally, nationally or internationally).
- your business objectives.
- Products and Services
Describe the nature of your products and services in a clear and simple manner. You should include the physical description, use and appeal, and stage of development.
- Marketing Plan
This is one of the more important sections of the business plan. It is most directly related to the success or failure of the business. The marketing plan explains how you intend to take advantage of opportunities and react when the economy downturns.
Among the issues to address are:
- market definition and opportunity
- competition
- marketing strategy
- market research
- sales forecasts
- backup and support
- Operational Plan
This section explains the business processes of your business. Areas to describe are such as product development, sources of raw materials, labor requirements, the manufacturing or production processes.
You should also include external influences such as local laws and regulations (eg. environmental law and health and safety standards) and how these issues are taken care of.
Avoid getting into technical details. The description should be straightforward and yet contain enough information for the reviewer to understand your operations.
- Management and Organization
Lenders and investors are also interested to know about the people running the business. Many ventures fail because the proper talent hasn’t been assembled.
To address this section, you need to assess your business talent requirement. Does your business require experienced marketing personnel? Do you have someone with enough industry knowledge to lead your organization? When you have identified the talent requirement, then you can map out your management team. You should also include a presentation of the backgrounds of the key people in your team.
Next, you could also include certain personnel policies and strategies. Will the employees be rewarded with a small ownership of the business? How will employees be selected, trained and rewarded? This will enable the reviewer to have a feeling of the company’s culture and style.
- Structure and Capitalization
This section describes the kind of financial resources required for the business to succeed in its early life. This is where you tell the potential lenders and investors how they could play a role in the financing of your business venture.
- Financial Plan
The financial plan is a projection of the business performance. This is usually a financial forecast of 5 years. Lenders are interested in your capacity to service your debt while investors are interested to know what kind of return to expect.
In summary, creating a viable business plan allows you to organize your thoughts and strategies. It also helps in sourcing for financing as well as communicating your ideas to your lenders, investors and management.
Previous: How To Start a Business.
Next: Choosing a Business Structure.