Regardless of your level of business expertise, putting together a business plan can be an intimidating and overwhelming experience. While there are a ton of free templates available online, they rarely offer much in the way of context or guidance.
In my experience working with clients, their main struggle seems to be with what kind of information to put in each section, and in what level of detail. This article breaks down each section of a typical business plan, and simplifies some of the more technical concepts so you can easily apply them to your own business.
Sometimes referred to as an executive summary, the company overview is basically an introduction. It tells readers what the business will offer, and lays out the basics of how it will function from an operational (manufacturer vs. wholesale distributor), legal (partnership vs. corporation), and philosophical (company values, vision, and mission) perspective.
What kind of business are you starting, and why? What type of products/services will you offer? How will the company be structured? Will the business have a physical location?
In many ways, the industry analysis tells the reader whether you really know what you’re getting yourself into. A good industry analysis explains how certain competitive, regulatory, political, and economic forces tend to affect the businesses that operate within a particular segment of the market.
Some industries are easier to break into than others (think about a restaurant vs. a telecommunications company). There are extremely high barriers surrounding the telecommunications industry, for example. It can take billions of dollars just to acquire the infrastructure and resources needed to get started. This prevents most businesses from being able to compete.
Don’t spend too much time talking about your business— this section shouldn’t focus on you. Explain relevant industry forces and what kind of opportunities/obstacles they present. This should be like a snapshot of what the industry and looks like as a whole (not how you’ll look in it).
Odds are, whatever product/service you plan to offer, your company won’t be the only one selling it. Customers will always be able to get something similar from someone else.
In the competitive analysis section, breakdown every aspect of the competition in your target market. Don’t limit your thoughts to a single industry or geographic area. Amazon, for instance, doesn’t only compete with other online stores; it can just as easily take customers away from neighborhood grocery stores, web-based streaming services, and beyond. Gyms don’t only face competition from other gyms, they also have to deal with home fitness equipment manufacturers and personal trainers.
In order for your business to maximize its chances for success, you need to know exactly who your competition is.
Who will buy your product/service? Describe your customer base and then provide more detailed information in regard to demographics, purchasing power, brand loyalty, etc.
Keep in mind that your customers aren’t limited to individual consumers, they can also include other businesses, trade associations, or purchasing groups that buy products wholesale.
How will your business distinguish itself from the competition? Will you offer customers the lowest price, the highest quality, or the absolute best customer service?
How will the business grow? Most businesses either concentrate on vertical (supply or distribution) or horizontal (opening additional locations) growth. Will the company expand through strategic mergers and acquisitions? Or will internal growth alone drive the business forward?
There needs to be a clear plan.
Who is on your team? In what ways is each person qualified to perform their role? If your Chief Financial Officer’s career experience includes managing and directing the finances of multinational corporations, you need to say so. Do they have experience in your industry? Do they have relationships with suppliers or distributors? What can they bring to the table?
Banks and potential lenders need assurance about who will be managing their potential investment. Why should they trust you and your team?
While your marketing and sales plan outlines how you will reach your customers, the operations plan is concerned with how you will develop, manufacture, and distribute your product/service. If you plan to outsource something, say which department and explain the rationale behind it.
Will production activities follow a traditional Monday through Friday schedule, or continue throughout the weekend? How will the company manage, track, and price its inventory? What policies or standards will be in place to ensure the quality of products/services?
Even the most dedicated and capable entrepreneurs often struggle to get a business up and running. Potential lenders and banks want to see the projected cash flows so they can assess the potential risk. So without a set of pro forma financial statements, securing financing is next to impossible.
The financial statements are built from the estimated sales forecast. Costs are added based on projected sales numbers, along with the expected cost of materials, labor, and overhead needed to produce the product.
If you’re unsure where to start, it can be helpful to refer to a set of financial statements from an established company in your industry. All publicly-traded companies are required to submit quarterly and annual filings to the Securities and Exchange Commission (SEC). Anyone can access those reports through the SEC’s Electronic Data Gathering Analysis and Retrieval system.
A company’s annual report (10-K) includes a balance sheet, income statement, cash flow statement, statement of retained earnings, and supporting footnotes. Financial statement footnotes can provide a wealth of information about cost structure, accounting methods, and other factors that you might not have considered.
Regardless of what kind of business you plan to start, the importance of consulting with an attorney and an accounting professional early in the planning process cannot be stressed enough. With their help you can determine whether your chosen legal structure and accounting methods will allow your business to reach its goals.
Professional advice combined with the information outlined above will provide a solid foundation upon which to build your business.