A business plan can be one of the most effective tools that you have as a small business owner
A business plan has three main purposes – communication, management and planning.
As a communication tool, an effective and complete plan can be used to attract investment capital, obtain a loan and pitch the business to potential employees or business partners. Many business owners share their business plans with their employees to give them a broader understanding of where the business is going. As a management tool, your business plan can help you monitor and evaluate your progress. By using your business plan to establish and evaluate goals, you can easily check your business' progress and compare projections to actual accomplishments. As a planning tool, a well-written business plan can help identify obstacles so that you can avoid them or establish alternative plans when you face a setback.
The development of a comprehensive business plan requires a realistic look at every phase of your business and allows you to identify potential problems before they occur and and help decide on alternatives
Although there is no single formula for developing a business plan, your plan can be sub-divided into eight distinct parts: The Executive Summary
: The purpose of the executive summary is to capture the interest of lenders, stakeholders and potential partners. This section summarize the information contained within the business plan and be no longer than 2 – 3 pages. The executive summary is usually written last, after the rest of the plan is completed.Business Description
: This section provides a detailed overview of the company, giving a clear “Mission Statement,” the history behind the idea or current business concept, a description of the company's current legal form (sole proprietorship, corporation, LLC, etc.) and a description of the product or service offered.Market Analysis
: No business plan is complete without an analysis of the environment that the business operates in – its target customers and competition. The main objective of this section of your plan is to convince your reader that an opportunity exists. You can do this by addressing the following areas:
The Management Team
- Description of the industry
- Targeted markets
- Marketing research
- Barriers to entry
: You should provide an overview of the background and strengths of yourself and your team. The strength of the management team can play a key role in an investor's or lender's decision to fund a venture. Operation
s: Provide an overview of your strategy for implementing the plan. You need to demonstrate that you have a complete understanding of how your business plan will be implemented. This section should also focus on any relevant costs associated with implementing the business plan. Critical Risk
s: You need to identity and address any potential problems that could have a significant adverse affect on your operations. By disclosing such possibilities, you are letting everyone know that there are risks associated with the business up front. Make sure that the following are covered:
- External Risks
- Internal Risks
- Insurance Provisions
- Contingency Plan
s: The purpose of the financial section of your business plan is to translate your idea into a plausible set of financial projections which address the purchase of merchandise and equipment, the efficient allocation of financial and other resources, return on investment and cash management. The financial section should include actual performance data for 3 to 5 years if available. If the company is a start-up, then this section will deal only with financial projections. For both existing and new businesses, be sure to include:
- Financial Performance (historical data)
- First year financial projections (monthly and quarterly)
- Three to Five year forecast
- Analysis of “break-even” point
: The appendix is where you should provide information referenced in other sections, as well as any additional supporting documents, such as copies of patents, trademarks or copyrights that have been completed, reviews by independent firms, publications, or outside agencies, reference letters, marketing questionnaires, agreements signed with other firms, tenants or suppliers, resumes of key management personnel and any advisors or corporate directors and promotional brochures or advertisements that describe your product or service.
Writing a business plan can be a HUGE undertaking, but if you are applying for a loan or looking for investors or partners it is a necessary job. Even if you are just going to use the business plan to better understand your market and operations, it can be an invaluable tool.