5 parts of a business plan
The key elements of a business plan are much the same,whether for a large business or a small business. This doesn't mean your business plan must be as thick as that of a Fortune company, but it should include the same elements found in the business plans of business giants such as GM, Apple, and CBS. An executive summary of your business plan provides the reader with a snapshot of your company profile and goals. It's often the most neglected element of the business plan, but it may be the most important, because it tells investors why your business will be successful in very few words. It should include a mission statement, a brief history of your business, and the highlights of your company's growth, your product or service and a summary of future plans.
13 Key Components of a Business Plan
Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper. The following pages will describe in detail the seven essential sections of a business plan: what you should include, what you shouldn't include, how to work the numbers and additional resources you can turn to for help.
With that in mind, jump right in. Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. All too often, what the business owner desires is buried on page eight.
Clearly state what you're asking for in the summary. The statement should be kept short and businesslike, probably no more than half a page. It could be longer, depending on how complicated the use of funds may be, but the summary of a business plan, like the summary of a loan application, is generally no longer than one page.
Within that space, you'll need to provide a synopsis of your entire business plan. Key elements that should be included are:. When writing your statement of purpose, don't waste words. If the statement of purpose is eight pages, nobody's going to read it because it'll be very clear that the business, no matter what its merits, won't be a good investment because the principals are indecisive and don't really know what they want.
Make it easy for the reader to realize at first glance both your needs and capabilities. The business description usually begins with a short description of the industry. When describing the industry, discuss the present outlook as well as future possibilities. You should also provide information on all the various markets within the industry, including any new products or developments that will benefit or adversely affect your business.
Base all of your observations on reliable data and be sure to footnote sources of information as appropriate. This is important if you're seeking funding; the investor will want to know just how dependable your information is, and won't risk money on assumptions or conjecture.
When describing your business, the first thing you need to concentrate on is its structure. By structure we mean the type of operation, i. Also state whether the business is new or already established. In addition to structure, legal form should be reiterated once again. Detail whether the business is a sole proprietorship, partnership or corporation, who its principals are, and what they will bring to the business. You should also mention who you will sell to, how the product will be distributed, and the business's support systems.
Support may come in the form of advertising, promotions and customer service. Once you've described the business, you need to describe the products or services you intend to market. The product description statement should be complete enough to give the reader a clear idea of your intentions.
You may want to emphasize any unique features or variations from concepts that can typically be found in the industry. Be specific in showing how you will give your business a competitive edge. For example, your business will be better because you will supply a full line of products; competitor A doesn't have a full line.
You're going to provide service after the sale; competitor B doesn't support anything he sells. Your merchandise will be of higher quality.
You'll give a money-back guarantee. Competitor C has the reputation for selling the best French fries in town; you're going to sell the best Thousand Island dressing. Now you must be a classic capitalist and ask yourself, "How can I turn a buck? And why do I think I can make a profit that way? You don't have to write 25 pages on why your business will be profitable.
Just explain the factors you think will make it successful, like the following: it's a well-organized business, it will have state-of-the-art equipment, its location is exceptional, the market is ready for it, and it's a dynamite product at a fair price. If you're using your business plan as a document for financial purposes, explain why the added equity or debt money is going to make your business more profitable.
Show why your business is going to be profitable. A potential lender is going to want to know how successful you're going to be in this particular business. Factors that support your claims for success can be mentioned briefly; they will be detailed later. Give the reader an idea of the experience of the other key people in the business.
They'll want to know what suppliers or experts you've spoken to about your business and their response to your idea. They may even ask you to clarify your choice of location or reasons for selling this particular product. The business description can be a few paragraphs in length to a few pages, depending on the complexity of your plan. If your plan isn't too complicated, keep your business description short, describing the industry in one paragraph, the product in another, and the business and its success factors in three or four paragraphs that will end the statement.
While you may need to have a lengthy business description in some cases, it's our opinion that a short statement conveys the required information in a much more effective manner. It doesn't attempt to hold the reader's attention for an extended period of time, and this is important if you're presenting to a potential investor who will have other plans he or she will need to read as well.
If the business description is long and drawn-out, you'll lose the reader's attention, and possibly any chance of receiving the necessary funding for the project. Market strategies are the result of a meticulous market analysis.
A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to garner its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and promotional strategies that will allow the company to become profitable within a competitive environment.
In addition, it provides an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future of your business. Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential. The total aggregate sales of your competitors will provide you with a fairly accurate estimate of the total potential market.
Once the size of the market has been determined, the next step is to define the target market. The target market narrows down the total market by concentrating on segmentation factors that will determine the total addressable market--the total number of users within the sphere of the business's influence.
The segmentation factors can be geographic, customer attributes or product-oriented. For instance, if the distribution of your product is confined to a specific geographic area, then you want to further define the target market to reflect the number of users or sales of that product within that geographic segment.
Once the target market has been detailed, it needs to be further defined to determine the total feasible market. This can be done in several ways, but most professional planners will delineate the feasible market by concentrating on product segmentation factors that may produce gaps within the market.
In the case of a microbrewery that plans to brew a premium lager beer, the total feasible market could be defined by determining how many drinkers of premium pilsner beers there are in the target market. It's important to understand that the total feasible market is the portion of the market that can be captured provided every condition within the environment is perfect and there is very little competition. In most industries this is simply not the case. There are other factors that will affect the share of the feasible market a business can reasonably obtain.
These factors are usually tied to the structure of the industry, the impact of competition, strategies for market penetration and continued growth, and the amount of capital the business is willing to spend in order to increase its market share.
Arriving at a projection of the market share for a business plan is very much a subjective estimate. It's based on not only an analysis of the market but on highly targeted and competitive distribution, pricing and promotional strategies. For instance, even though there may be a sizable number of premium pilsner drinkers to form the total feasible market, you need to be able to reach them through your distribution network at a price point that's competitive, and then you have to let them know it's available and where they can buy it.
How effectively you can achieve your distribution, pricing and promotional goals determines the extent to which you will be able to garner market share. For a business plan, you must be able to estimate market share for the time period the plan will cover. In order to project market share over the time frame of the business plan, you'll need to consider two factors:.
Defining the market is but one step in your analysis. With the information you've gained through market research, you need to develop strategies that will allow you to fulfill your objectives. When discussing market strategy, it's inevitable that positioning will be brought up. A company's positioning strategy is affected by a number of variables that are closely tied to the motivations and requirements of target customers within as well as the actions of primary competitors.
Once you've answered your strategic questions based on research of the market, you can then begin to develop your positioning strategy and illustrate that in your business plan. A positioning statement for a business plan doesn't have to be long or elaborate. It should merely point out exactly how you want your product perceived by both customers and the competition. How you price your product is important because it will have a direct effect on the success of your business.
Though pricing strategy and computations can be complex, the basic rules of pricing are straightforward:. Distribution includes the entire process of moving the product from the factory to the end user. The type of distribution network you choose will depend upon the industry and the size of the market. A good way to make your decision is to analyze your competitors to determine the channels they are using, then decide whether to use the same type of channel or an alternative that may provide you with a strategic advantage.
As we've mentioned already, the distribution strategy you choose for your product will be based on several factors that include the channels being used by your competition, your pricing strategy and your own internal resources. With a distribution strategy formed, you must develop a promotion plan. The promotion strategy in its most basic form is the controlled distribution of communication designed to sell your product or service.
In order to accomplish this, the promotion strategy encompasses every marketing tool utilized in the communication effort. This includes:. Once the market has been researched and analyzed, conclusions need to be developed that will supply a quantitative outlook concerning the potential of the business.
The first financial projection within the business plan must be formed utilizing the information drawn from defining the market, positioning the product, pricing, distribution, and strategies for sales.
The sales or revenue model charts the potential for the product, as well as the business, over a set period of time. Most business plans will project revenue for up to three years, although five-year projections are becoming increasingly popular among lenders.
When developing the revenue model for the business plan, the equation used to project sales is fairly simple. It consists of the total number of customers and the average revenue from each customer. In the equation, "T" represents the total number of people, "A" represents the average revenue per customer, and "S" represents the sales projection.
Overview. After the executive summary, a. Sales & Marketing Strategy.
Many argue that spending time on a business plan is not a wise choice, as it will surely change. However, a business plan is still considered necessary. As any founder knows, the only sure thing about running a growing company is change, and the thing that will change most often will always be your business plan.
A business plan is your chance to tell your story to potential investors and lenders. This is where you bring the vision of having your own business to life.
A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work. When planning a new business or analyzing an existing venture, always begin with the five parts - they will help you discover any major issues or gaps quickly.
How to write a business plan (template): 10 steps, 5 tips, and examples to guide you
There has been more talk about businesses not needing a business plan when starting out, especially if they're not asking for money. According to Carl Schramm, author of "Burn the Business Plan," many large corporations didn't have business plans when they started:. The U. Small Business Administration takes a middle-of-the-road approach recognizing that not all businesses need a comprehensive business plan. Instead, it suggests a lean, simple business plan for startups that highlights the basics, or for businesses to focus on parts of a business plan that make the most sense for their business. While appearing first in the business plan, the executive summary is a section that is usually written last as it is a summary of the entire business plan.
What Are The '5 Parts of Every Business'?
Tasks, to-do lists, meetings, and more. Amidst that rush, the idea of writing a business plan—much less following a business plan template—often feels time-consuming and intimidating. In fact, a wealth of data now exists on the difference a written business plan makes. Especially for small or growing companies. Bplans worked with the University of Oregon to compile and analyze research around the benefits of business planning. For sources and links, see footnotes at the bottom of this article. It communicates who you are, what you plan to do, and how you plan to do it. Templated business plans give investors a blueprint of what to expect from your company and tell them about you as an entrepreneur. The majority of venture capitalists VCs and all banking institutions will not invest in a startup or small business without a solid, written plan.
Now that you understand why you need a business plan and you've spent some time doing your homework gathering the information you need to create one, it's time to roll up your sleeves and get everything down on paper.
The executive summary is the first and most important part of your business plan. The executive summary highlights the strengths of your plan and explains how your company will provide a unique to its clients.
The 5 Key Elements Of A Good Business Plan
As is the case with most big projects, crafting a business plan is one of those things that takes an incredible amount of diligence and no shortage of courage. If you approach this with a firm understanding of what key information to include in each section of your business plan and know how each section works together to form a cohesive, compelling, and — above all — persuasive whole, it will make the writing process a whole lot less daunting. In the same way that a great movie trailer gives you a basic understanding of what the film is about while also enticing you to go check out the full-length feature, your Executive Summary serves as an overview of the main aspects of your company and business plan that you will discuss in greater length in the rest of your plan. Outline the next objectives or milestones that you hope to meet and what it means for the growth of your company. The Company Synopsis section is where you provide readers with a more in-depth look at your company and what you have to offer. If you spend the majority of your time on any one part of your business plan, take the time to really nail this part. If you can build an engaging story around the problem that your audience can relate to, it makes the payoff of your solution statement all the more powerful. When considering how to position your problem in the context of your business plan, think to yourself: what is the single greatest problem my customers face? How do other solutions in the market fail to alleviate that problem, thus creating a major need for my product? Your goal here is to help illustrate:.
Elements of a Business Plan
There are many reasons why every company should have a business plan , but not every business needs a formal plan to show to outsiders. If your plan is just for yourself and your team, then you may be fine with just the lean business plan. However, if you do need to develop a plan to show to investors, banks, lawyers, and so forth, you can follow this simple business plan outline and decide on how in-depth or concise your business plan needs to be. No matter the type of business plan you create, these are the six basic sections you should include. These sections are necessary when working with an outside party or potential investor, to give them a quick look into each aspect of your business. For those looking for a deeper definition of how to fill out each section, skip to the detailed outline below. Or, check out our comprehensive How to Write a Business Plan guide, for a thorough rundown and additional resources. Write your executive summary last. Summarize the problem you are solving for customers, your solution, the target market, the founding team, and financial forecast highlights. Keep things as brief as possible and entice your audience to learn more about your company.
