Business plans are a fact of modern business life. Most business owners will need to write a business plan at some point, whether it is for raising money or for planning out how your business is going to run. In fact while a common reason for creating a business plan, raising money for investment is just one reason for creating a business plan. Writing for Entrepreneur magazine, Stever Robbins explains why you need a business plan. On this subject he says:
“A business plan is much more than that [a funding tool]: It’s a tool for understanding how your business is put together”.
According to Robbins this means being able to monitor progress, hold yourself accountable, and drive sales and recruitment. But how do you create a robust business plan that will stand up to market forces?
Well, there are a number of different important elements of a business plan, which include product/service, industry and market, competitors, marketing, sales, management, operations and financials. Many business plans have a number of other headings, but most would fall under one of these in reality. At the end you also write an executive summary that documents the most compelling points for each section. Let’s look at each in section in turn:
1. Product/service – in this section of the business plan you need to be able to document what your product or service is, why it is different from other offerings that are already on the market, what the key features are and what the main benefits are for the customer. This section should also outline what the business model is. The business model is a summary of how you will make money.
2. Industry and market – understanding the forces operating in your industry is absolutely critical to your success. This section forces you to do the research to understand the drivers for success in your industry, whether there is growth or decline in this industry and why, and whether the market is served and how big it is. It also requires you to define your target market. Note: if your target market is “everyone” you are doing something wrong. Focus on the people who will be most interested in your product or service. All of this helps you to shape the way you decide to move forward with your business.
3. Competitors – with this part of the business plan you need to identify your competitors and pinpoint the reasons that you will be able to gain market share, either from them or in the market. What gives you competitive advantage over them? Is it quality? Cost? Speed of delivery? Or something else? Don’t fall into the trap of assuming there are no competitors. There may be no direct competitors but in almost all cases there will be alternatives that people currently use, even if they are not all that similar to your solution.
4. Marketing – as you’ve already defined your target market by this point, deciding how you will market to them becomes somewhat easier. Where are they likely to be most attracted to your product or service, and how? For some this might involve a lot of online marketing and social media. For others, word of mouth may be more appropriate, and attending major networking events will be critical. Define what you will do and when and how much it will cost you – on this front, be realistic. Marketing is an important part of getting customers and it does need a decent budget.
5. Sales – you know already how you will make money, but in this section you estimate sales. You work out how many of your product or service you will be able to sell per month and per year. The per month part is usually just carried out for the first year, and after that the figures can be yearly. You need to be able to document your assumptions of how you came to these figures. This may be based on market size and target market, or on what competitors are doing.
6. Management – this area may not seem to be a particularly important area of focus, but it is critical, especially if your plan is being developed to attract investors. You need to provide a profile of each of your key management team members which demonstrates why they can deliver a successful business. Don’t put resumes here – they can go into an appendix.
7. Operations – here you document how you will deliver your product and service and any key operational processes. This section might include and organisation chart, and an estimation on the number of people that you need.
8. Financials – in this section you present your financial statements, which are usually a profit and loss, balance sheet and cash flow statement for 3-5 years in advance. These show your revenues expenses, investments and consequently show what your business will be able to make in terms of profit. It’s a critical section for investors, so time spent here is time well spent.
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.