Creating A Business Plan
How To Create A Business Plan
What is a business plan? Simply put, a business plan is a written description of your business’ future – what are you going to do and how you’re going to make it happen. Business plans are often used to raise needed funds. Business plans have three primary sections (business concept, marketplace, and financials). When all the subsections are added it comes to about seven sections. When you add a cover page and table of contents the final page count is 15-20. If your business plan also serves as a fundraising tool it could be longer and require greater detailed analysis and financials.
Three of the many “business plan templates” available online are below.
And yes, “There’s an app for that!”
Let’s Dig Into Each Section Of The Business Plan
1. Executive Summary (about a half page)
Oddly enough, you should write this section last, after everything else has been completed, vetted and polished. It is that process that allows you to write this section “in your own voice”. This is the section that will determine if anything else in the business plan gets read. It is longer than an elevator pitch but shorter than a staff meeting.
Early on, the Executive Summary must clearly address two critical items. First, what are the relevancy, qualified value and unique differentiation of your business’ value proposition?
- What customer problem or improvement in their situation does your business provide? (Relevancy )
- What specific benefits does your business deliver? (Qualified Value)
- Why should customers buy from you and not your competition? (Unique Differentiation)
Secondly, what is your plan, including milestones and target dates, to achieve that value proposition? For example, if you are asking for money, which milestones will be reached and how many months will it take? Enough detail of the plan must be communicated for the investor to determine if your team can reach its destination and decide if the plan delivers enough value to give an acceptable return.
Your executive summary should be:
- Short, but complete
- Memorable, but not flowery
- Understandable by someone unfamiliar with your business
- Give the reader a reason to keep reading
- In your voice
- It should summarize:
- What are your product/service competitive advantages (better/easier/faster than…/only one that can…)
- Your team’s strengths (Ph.D., grant funding, successful entrepreneur, angel investor, etc.)
- What led up to this written business plan (winning a competition; creating a working prototype; increasing sales; being approached by investors or mentors; your employer downsized and you didn’t make the cut)
- If asking for money – enough financial specifics to give a clear idea of how much you want, what it will be used for and how will be repaid.
- The legal structure of your business. When it was founded. Principal owners, key personnel, advisors, board members.
- Major achievements – (patents, prototypes, signed contracts, test marketing results, investor commitments)
2. Business Description (A few paragraphs to a few pages)
This section describes your business within the larger context of the industry it competes in. Some readers of your business description may not know what problems your industry has already solved, has yet to solve, are considered impossible to solve and ones close to being solved. Placing your business within that continuum is a good place to start describing and distinguishing it from the rest of the competition.
Some questions below might also fit well into your business’ description:
- Which industry and sector your business is in
- Describe the “state of the art” your business would compete in
- Details about your business’ legal structure
- Vitas for your team, board of advisors, and mentors
- Description of your ideal customer
- Your plan to acquire new customers
- Vendors you will use
- Pending legal action against competitors and how you will avoid those pitfalls
- Pending legislative action that could impact your industry or sector
- Factors affecting the selection of your business location
3. Market Analysis (length depends on complexity)
A detailed picture of factors affecting your market’s price discovery, ranking of your pricing compared to your competition, distribution cost estimates, promotional strategies (short term and long term), size, demographics, structure, growth prospects, trends, and sales potential.
Questions to consider:
- How often will your product or service will be purchased?
- What is the interval between purchases?
- What share of your target market can be attracted to new products or services?
- Which pricing model will you use?
- Cost-plus a fixed profit margin for all customers
- Multiple pricing schedules when selling through multiple outlets
- Competitive pricing when breaking into a market where quality is uniform across brands
- What distribution channel will you use?
- What channels are your competitors using?
- On-demand production and shipping
- Fulfillment center serving multiple vendors
- In-house inventory
- Ship to the customer
- Ship to local outlets
- Brick & mortar only
- Multiple distribution centers based on customer location and inventory levels
- How will your choice of distribution channel affect your production facility?
- Do you have a backup distribution plan?
- What factors outside your control could disrupt your distribution channel?
4. Competitive analysis (length depends on complexity)
- What are the strengths and weaknesses of your competitors?
- What are the barriers preventing you from entering the market?
- What advantages do you have over your competitors?
- What barriers does your production process add?
- What scenarios would cause your business to fail?
- What scenarios would cause your competitors to fail?
- What scenarios would cause your market sector to fail?
- Who are your direct competitors?
- Who are your indirect competitors?
- How will your competitors know when you enter the market?
- How do your competitors respond to new businesses entering the market?
5. Design and development plan (length depends on complexity)
- What makes your product/service proprietary?
- Is it better than your competition?
- Can your design and development plans be reverse-engineered?
- Is your intellectual property protected?
- What safeguards do you have in place to keep “trade secrets” secure?
- What steps have you taken to protect any aspect of your design and development plans stored online?
6. Operations and management (length depends on complexity)
- How does your business fulfill daily business functions?
- Acquiring new customers
- Receiving orders
- Fulfilling orders
- Hiring personnel
- Training personnel
- Quality control
- Developing new products/services
- What are the costs associated with those functions?
- Do you have documented policies and procedures?
- Do you have distinct units (shipping, marketing, production, etc.) within your organization?
- What are the responsibilities of your management team?
- What are the primary metrics to measure your business’ “operational health”?
- Do you have a disaster-recovery plan?
- What constitutes a disaster in your business?
- How are disaster-inducing conditions monitored?
- Who can initiate a disaster recovery?
- Who leads a disaster recovery when needed?
- How do you notify customers, vendors, regulatory bodies of a disaster?
- Do you have insurance to cover disaster losses?
7. Financial factors (3 pages)
Your business’ monetary condition will be determined by three financial reports that will become the backbone of your business plan. Key management personnel should be qualified to read, understand and respond to information in these statements.
- Income statement – your business’ cash-generating ability (revenue, expenses, capital, cost of goods). Accounting software can generate income statements based on the data entered during the normal course of business. An income statement shows the net profit or loss your business had over a specified period of time.
- Cash flow statement – the most critical financial tool your business has. It shows how much cash you need to meet critical obligations, when you will require it and where it will come from. The cash flow statement shows your business’ monthly and yearly profit or loss. A cash flow statement loss is a major red flag and demands immediate attention. During the first year of operations, a monthly cash flow statement should be prepared.
- Balance sheet – calculates the net worth of your business by measuring assets and liabilities. To obtain financing for a new business your personal balance sheet will also need to be included.
Business Plans – Step by step guide
How to write a business plan
Small Business Administration Center – Writing a business plan
Small Business Administration Center – Why do I have to write a business plan?
Business Plan Daily – free business plan templates
Seven sections of business plan