The following is a comprehensive guide to creating a great business plan. We’ll start with an overview of key concepts. Then we’ll look at each section of a typical business plan:
1.) Executive summary, Mission and Vision, Key success factors, Business model summary.
2.) Company Description Business model canvas, Operational model, USP (UNIQUE SELLING PROPOSITION),Organizational structure, organogram, Business risks.
3.) Situational Market Analysis, Trends, Challenges, Target Market Segmentation, Porter’s five forces of profitability, SWOT.
4.) Growth plan
5.) Marketing plan
6.) FINANCIAL PROJECTIONS
7.) Key Assumptions, Financial summary, Projected Income Statement, Projected Cash flow, Projected Balance sheet, Loan Schedule, Financials Analysis.
8.) Business Ratios and Infographics).
So first let’s gain a little perspective on why you need a business plan.
Many business plans are fantasies. That’s because many aspiring entrepreneurs see a business plan as simply a tool–filled with strategies and projections and hyperbole–that will convince lenders or investors the business makes sense.
The Executive Summary is a brief outline of the company’s purpose and goals. While it can be tough to fit on one or two pages, a good Summary includes:
- A brief description of products and services
- A summary of objectives
- A solid description of the market
- A high-level justification for viability (including a quick look at your competition and your competitive advantage)
- A snapshot of growth potential
- An overview of funding requirements
I know that seems like a lot, and that’s why it’s so important you get it right.
The Executive Summary is often the make-or-break section of your business plan.
A great business solves customer problems. If your Summary cannot clearly describe, in one or two pages, how your business will solve a particular problem and make a profit, then it’s very possible the opportunity does not exist–or your plan to take advantage of a genuine opportunity is not well developed.
So think of it as a snapshot of your business plan. Don’t try to “hype” your business–focus on helping a busy reader get a great feel for what you plan to do, how you plan to do it, and how you will succeed.
Since a business plan should above all help you start and grow your business, your Executive Summary should first and foremost help you do the following.
1. Refine and tighten your concept.
Think of it as a written elevator pitch (with more detail, of course). Your Summary describes the highlights of your plan, includes only the most critical points, and leaves out less important issues and factors.
As you develop your Summary, you will naturally focus on the issues that contribute most to potential success. If your concept is too fuzzy, too broad, or too complicated, go back and start again. Most great businesses can be described in several sentences, not several pages.
2. Determine your priorities.
Your business plan walks the reader through your plan. What ranks high in terms of importance? Product development? Research? Acquiring the right location? Creating strategic partnerships?
Your Summary can serve as a guide to writing the rest of your plan.
3. Make the rest of the process easy.
Once your Summary is complete, you can use it as an outline for the rest of your plan. Simply flesh out the highlights with more detail.
Then work to accomplish your secondary objective by focusing on your readers. Even though you may be creating a business plan solely for your own purposes, at some point you may decide to seek financing or to bring on other investors, so make sure your Summary meets their needs as well. Work hard to set the stage for the rest of the plan. Let your excitement for your idea and your business shine through.
In short, make readers want to turn the page and keep reading. Just make sure your sizzle meets your steak by providing clear, factual descriptions.
How? The following is how an Executive Summary for a bicycle rental store might read.
Overview and Objectives
Providing an overview of your business can be tricky, especially when you’re still in the planning stages. If you already own an existing business, summarizing your current operation should be relatively easy; it can be a lot harder to explain what you plan to become.
So start by taking a step back.
- What you will provide
- What you need to run your business
- Who will service your customers, and
- Who your customers are.
Keys to Success
- Provide high-quality equipment, sourcing that equipment as inexpensively as possible through existing relationships with equipment manufacturers and other cycling shops
- Use signage to attract visitors traveling to the national forest, highlighting our cost and service advantage
- Create additional customer convenience factors to overcome a perceived lack of convenience for customers planning to ride roads and trails some distance away from our shop
- Develop customer incentive and loyalty programs to leverage customer relationships and create positive word of mouth
And so on …
You could certainly include more detail in each section; this is simply a quick guide. And if you plan to develop a product or service, you should thoroughly describe the development process as well as the end result.
The key is to describe what you will do for your customers–if you can’t, you won’t have any customers.
Products and Services
In the Products and Services section of your business plan, you will clearly describe–yep–the products and services your business will provide.
Keep in mind that highly detailed or technical descriptions are not necessary and definitely not recommended. Use simple terms and avoid industry buzzwords.
On the other hand, describing how the company’s products and services will differ from the competition is critical. So is describing why your products and services are needed if no market currently exists. (For example, before there was Federal Express, overnight delivery was a niche business served by small companies. FedEx had to define the opportunity for a new, large-scale service and justify why customers needed–and would actually use–that service.)
Patents, copyrights, and trademarks you own or have applied for should also be listed in this section.
Depending on the nature of your business, your Products and Services section could be very long or relatively short. If your business is product-focused, you will want to spend more time describing those products.
If you plan to sell a commodity item and the key to your success lies in, say, competitive pricing, you probably don’t need to provide significant product detail. Or if you plan to sell a commodity readily available in a variety of outlets, the key to your business may not be the commodity itself but your ability to market in a more cost-effective way than your competition.
But if you’re creating a new product (or service), make sure you thoroughly explain the nature of the product, its uses, and its value, etc.–otherwise your readers will not have enough information to evaluate your business.
Key questions to answer:
- Are products or services in development or existing (and on the market)?
- What is the timeline for bringing new products and services to market?
- What makes your products or services different? Are there competitive advantages compared with offerings from other competitors? Are there competitive disadvantages you will need to overcome? (And if so, how?)
- Is price an issue? Will your operating costs be low enough to allow a reasonable profit margin?
- How will you acquire your products? Are you the manufacturer? Do you assemble products using components provided by others? Do you purchase products from suppliers or wholesalers? If your business takes off, is a steady supply of products available?
Expansion will allow us to move product offerings into new equipment sales. We will also explore maintenance and fitting services, leveraging our existing maintenance staff to provide value-added services at a premium price.
And so on …
When you draft your Products and Services section, think of your reader as a person who knows little to nothing about your business. Be clear and to the point.
Think of it this way: The Products and Services section answers the “what” question for your business. Make sure you fully understand the “what” factor; you may run the business, but your products and services are its lifeblood.
Market research is critical to business success. A good business plan analyzes and evaluates customer demographics, purchasing habits, buying cycles, and willingness to adopt new products and services.
The process starts with understanding your market and the opportunities inherent in that market. And that means you’ll need to do a little research. Before you start a business you must be sure there is a viable market for what you plan to offer.
That process requires asking, and more importantly answering, a number of questions. The more thoroughly you answer the following questions, the better you will understand your market.
Start by evaluating the market at a relatively high level, answering some high-level questions about your market and your industry:
- What is the size of the market? Is it growing, stable, or in decline?
- Is the overall industry growing, stable, or in decline?
- What segment of the market do I plan to target? What demographics and behaviors make up the market I plan to target?
- Is demand for my specific products and services rising or falling?
- Can I differentiate myself from the competition in a way customers will find meaningful? If so, can I differentiate myself in a cost-effective manner?
- What do customers expect to pay for my products and services? Are they considered to be a commodity or to be custom and individualized?
Fortunately, you’ve already done some of the legwork. You’ve already defined and mapped out your products and services. The Market Opportunities section provides a sense-check of that analysis, which is particularly important since choosing the right products and services is such a critical factor in business success.
But your analysis should go further: Great products are great, but there still must be a market for those products. (Ferraris are awesome, but you’re unlikely to sell many where I live.)
So let’s dig deeper and quantify your market. Your goal is to thoroughly understand the characteristics and purchasing ability of potential customers in your market. A little Googling can yield a tremendous amount of data.
For the market you hope to serve, determine:
- Your potential customers. In general terms, potential customers are the people in the market segment you plan to target. Say you sell jet skis; anyone under the age of 16 and over the age of 60 or so is unlikely to be a customer. Plus, again in general terms, women make up a relatively small percentage of jet ski purchasers. Determining the total population for the market is not particularly helpful if your product or service does not serve a need for the entire population. Most products and services do not.
- Total households. In some cases determining the number of total households is important depending on your business. For example, if you sell heating and air conditioning systems, knowing the number of households is more important than simply knowing the total population in your area. While people purchase HVAC systems, “households” consume those systems.
- Median income. Spending ability is important. Does your market area have sufficient spending power to purchase enough of your products and services to enable you to make a profit? Some areas are more affluent than others. Don’t assume every city or locality is the same in terms of spending power. A service that is viable in New York City may not be viable in your town.
- Income by demographics. You can also determine income levels by age group, by ethnic group, and by gender. (Again, potential spending power is an important number to quantify.) Senior citizens could very well have a lower income level than males or females age 45 to 55 in the prime of their careers. Or say you plan to sell services to local businesses; in that case, try to determine the amount they currently spend on similar services.
The key is to define your market–and then show how you will serve your market.
Sales and Marketing
Providing great products and services is wonderful, but customers must actually know those products and services exist. That’s why marketing plans and strategies are critical to business success. (Duh, right?)
But keep in mind marketing is not just advertising. Marketing–whether advertising, public relations, promotional literature, etc.–is an investment in the growth of your business.
Like any other investment you would make, money spent on marketing must generate a return. (Otherwise why make the investment?) While that return could simply be greater cash flow, good marketing plans result in higher sales and profits.
So don’t simply plan to spend money on a variety of advertising efforts. Do your homework and create a smart marketing program.
Here are some of the basic steps involved in creating your marketing plan:
- Focus on your target market. Who are your customers? Who will you target? Who makes the decisions? Determine how you can best reach potential customers.
- Evaluate your competition. Your marketing plan must set you apart from your competition, and you can’t stand out unless you know your competition. (It’s hard to stand out from a crowd if you don’t know where the crowd stands.) Know your competitors by gathering information about their products, service, quality, pricing, and advertising campaigns. In marketing terms, what does your competition do that works well? What are their weaknesses? How can you create a marketing plan that highlights the advantages you offer to customers?
- Consider your brand. How customers perceive your business makes a dramatic impact on sales. Your marketing program should consistently reinforce and extend your brand. Before you start to market your business, think about how you want your marketing to reflect on your business and your products and services. Marketing is the face of your to potential customers–make sure you put your best face forward.
- Focus on benefits. What problems do you solve? What benefits do you deliver? Customers don’t think in terms of products–they think in terms of benefits and solutions. Your marketing plan should clearly identify benefits customers will receive. Focus on what customers get instead of on what you provide. (Take Dominos; theoretically they’re in the pizza business, but really they’re a delivery business.)
- Focus on differentiation. Your products and services have to stand out from the competition in some way. How will you compete in terms of price, product, or service?
The Competitive Analysis section for our cycling rental business could start something like this:
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 important, 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.