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A business plan serves as a solid foundation for getting your business started in the right direction and can be a useful guiding tool in keeping your business on track to meet your goals.
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How to Build a Business Plan
Setting Your Business on the Right Course
A business plan serves as a solid foundation for getting your business started in the right direction and can be a useful guiding tool in keeping your business on track to meet your goals. The business plan will be the basis for developing your business strategy, designing your operation and managing the business. With your business plan as your base, and your strategy as your direction, you can get off to a focused and organized start, properly allocate your resources, foresee and overcome difficulties, adapt to changes in the marketplace, take advantage of opportunities, control costs and maximize profitability.
A good business plan also lends credibility and seriousness to your business. When your business plan clearly identifies what you intend to do and how you intend to do it, with budgets, cash flow projections and pro forma income statements and balance sheets, you can present the plan to banks or other lenders and potential partners or investors. A well-prepared business plan can increase your chances of obtaining the financing you need for capital expenditures and working capital during your start-up and initial operating period. Your business plan can also be used to provide information to your suppliers and customers to generate confidence in your business.
Getting Started
Some of the aspects to consider in getting started with your business plan include a clear definition of the product or service you will be providing, your target market, how you intend to reach that market in terms of your marketing strategy, your competition, the resources you will need, how you will finance your business and a timetable for getting your business underway. You may have clear ideas on these aspects before you begin drafting a business plan, but the exercise of actually putting together a business plan can help you think about aspects you may not have considered, and it will indicate the areas in which you need to focus your attention.
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Business Plan Structure
Your business plan should be adapted to highlight what is unique and special about your business. And while your business plan will reflect your business's specific personality, it should also consist of objective, concrete and reliable information. There is no specific format for a business plan, but it should generally include a description of the business and sections on marketing, finance and management.
Description of the Business
This section is the mission statement - why you are setting up this business and what you hope to accomplish. But more than just a statement of purpose, you should go into sufficient depth in this section to clearly identify your product or service, what makes it unique, the development phase to bring it to market and the operating phase. In describing your product or service, you should indicate any special attributes it has. You should point out the perceived need you intend to fill or why you believe your product or service is something that customers want and for which they are willing to pay a good price. You should indicate whether the product or service is something completely new or an improved version or adaptation of an existing product or service; or whether you are offering a complete package of goods and related services.
In describing your business you may want to provide a general explanation of the product development and production processes, or how you plan to carry out the services you will provide. You could explain any competitive advantages your business has in terms of knowledge and expertise, experience, skills and technical abilities, education and training, production and distribution capabilities, cost efficiencies, innovation, research and development, or proprietary information such as patents or copyrights.
The description of the business should also include as much background information as you have available, including the business name and address, the owners' names, legal structure, legal representative, taxpayer ID, telephone and fax numbers, e-mail addresses and Web site(s). If you are subject to any legal or regulatory requirements in your line of business, you should indicate whether you have obtained the necessary permits or licenses and, in general, how you intend to satisfy those requirements.
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Marketing
The marketing section of your business plan sets the groundwork for your marketing strategy. You should clearly define your target market and whether your product or service is intended for the general public, a certain market niche or particular customers. You should indicate whether you will be competing in a local, regional, national or global arena. If you have done any market surveys or research, you can include your estimate of the total approximate size of your market and reference your information.
If you are offering something new and unique, you should indicate how you intend to identify yourself as the first to offer this product or service. If you are breaking into an existing market, you should identify your principal competitors, whether they are small-, medium- or large-sized companies, how long they have been in business, how difficult it is to break into the market and how you intend to gain market share. Your business plan should indicate whether you will do your own marketing and promotion, what types of advertising media you intend to use, whether you will contract out the marketing work and, in general, how you intend to reach your target customers.
Finance
In the finance section of your business plan you should point out the resources you have available, the amount the owners intend to invest in the business, any financing you have already received and the additional financing you need. You should include budgets for capital expenditures and start-up costs, working capital needs for the initial operating period, a pro forma balance sheet and income statement, and a projected cash flow statement.
You should include any estimates you have made regarding proposed pricing, variable and fixed expenses, gross and net margin, and return on investment. If you are seeking financing, your business plan should include a projected cash flow statement that shows how you intend to repay loans or credits. You should indicate how profits and losses will be shared among the owners, which will depend on the legal structure you select for your business. If you are looking for outside investors, your business plan should have an indication of the return they can expect on their investment and the time horizon involved.
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Management
This section focuses on the people involved and the actual operation of your business. You should identify the company directors, officers and managers, assignment of responsibility and accountability, operating procedures, financial controls and how the day-to-day activities of your business will be carried out.
You could include a description of the qualifications and experience of the key persons involved in management that will contribute to the success of the business. This could include academic degrees, certifications, titles, licenses; technical, marketing or managerial expertise; and creative ability as it relates to the business. You may want to include a summary of these persons' special qualifications, background and experience, or attach their curriculum vitae.
Executive Summary
Your business plan could include an executive summary, either at the beginning or end, that highlights some of the most important points from the sections on description of the business, marketing, finance and management. The executive summary will probably be the last section you draft, once you have worked through the other sections and can condense the information into an overall synopsis of your plans for the business.
Attachments
Your business plan can include attachments that support and provide additional information on the points described in the different sections of the plan. Objective backup documentation will serve to solidify your plan and can include copies of articles of incorporation or bylaws, public deeds, licenses and permits, contracts or letters of intent from customers and suppliers, rent or lease contracts, purchase-sale agreements, franchise contracts, proposals and quotations, lists of capital goods, insurance policies, tax returns, financial statements, and financial analyses such as breakeven point, discounted future cash flow and net present value calculations.
As Your Business Evolves
Your original business plan is a major step forward in getting your business off to a good start. But the business plan is also a document that you can adapt and modify as your business grows and evolves. You may want to update your business plan when you enter new lines of business, when you take advantage of significant new opportunities or when the basic structure of your business changes.
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Sources:
Cynthia W. Massarsky, "How to Build a Business Plan" – Yale
"How to Create a Business Plan" – Entrepreneur
"How to Prepare Your Business Plan" - United Nations Conference on Trade and Development
Bplans - Writing a Business Plan
Inc.com - Business Plan Building, Section by Section
Small Business Administration - Write a Business Plan
Written by Kevin Hagen - Content provided by Associated Content for MercaTrade.com
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