Writing a business plan is almost like a rite of passage for entrepreneurs. Viewpoints regarding the importance of a business plan from one extreme to another.
Some people believe you should live and breathe by it; other believe the information is important, but the formality is overrated because there’s a chance you’ll be the only one to ever fully read the document.
In reality, the most important part of a business plan is that it clarifies your thoughts and clearly outlines your business’s strategic positioning and plans. Your business plan should serve you and your company’s needs. Your time is limited, so make sure that the time you spend on the it is time well spent.
The biggest thing to keep in mind when crafting a business plan is that while there are some key common elements found in most business plans, your business plan can be unique. After all, your business is unique and different, so should its plan be too?
The major components of a business plan are:
- Executive Summary
- Company Overview
- Market Analysis
- Company Organization & Management
- Service/Product Line
- Marketing & Sales
- Financial Statements
A business plan covers all the major aspects of your business. It explains what your business does and how it will address the needs of the marketplace that are unmet by current offerings (your competitors). Its content will vary depending on whether you are an established business or a startup/new business.
Here’s a breakdown of what you can include in each section:
The Executive Summary should always be the first page of your business plan and should not exceed the one page limit. It provides an overview of everything found in your business plan. Although it’s the first page, it may be helpful to write this section last after you have completed all other aspects of your business plan.
Established businesses can include the following information:
- The Mission Statement – What is the purpose of your company?
- Company Information – When was your business founded and by whom? How many employees do you have? Where are you located?
- Growth – How is your company performing financially compared to its history?
- Products/Services – What does your company provide to its customers?
- Financial Information – What financial information is most important and deserves space in the Executive Summary?
- Vision for the Future – What is the goal your business is working towards every day?
Startups or Newer business should touch upon all the same points, but will have much less information than an established business in certain areas. Therefore, you should provide additional background information on the “why” behind your business. Why are you founding this company at this time to fulfill a particular need? What makes your company the right one to meet the market’s needs?
The company overview provides exactly what it sounds like—an overview of your company. Think of it as an elevator pitch for your company. It should explain what products/services your company provides, what specific customers it serves, and the competitive advantage that makes you the best to deliver this value to your customers.
The business world is a competitive place and you need to explain how you will not only survive, but also thrive in your respective industry. Key points to address include:
- Industry Outlook – What industry are you competing in and what are its defining characteristics? How big is it? How many competitors exist?
- Target Market – Who are your ideal customers? What are its defining characteristics (such as demographic information and trends)? How big is the target market? How much market share will you be able to capture from your target market?
- Pricing – What is your pricing strategy? How will this align with capturing your target market? How does this compare to your competitors’ strategies?
- Regulatory Information – If there is any important regulatory information from the government or licensing body that affects your industry or target market, you should address this here.
Company Overview and Management
Every company is organized differently. This section allows you to shed some light on how your company is structured and introduce those who are in charge or own the company. You can share their background information, including any qualifications that are relevant.
This section is where you finally have the opportunity to share the specifics of your product/service. If you’re developing a physical product, be sure to note its current stage of development (concept, prototype, in production, etc.).
In addition to explaining what it is that your company offers, you can share any important information about intellectual property (patents, coding, etc.) and noteworthy research and development plans that could affect your product/service offerings.
Marketing & Sales
After explaining your product/service, you now have the opportunity to share how you plan to bring it to market and acquire customers. Outline your marketing strategy, emphasizing how you plan to penetrate and grow in the market.
Clearly define your distribution channel and note any partnerships that are critical to your success. This is not the section to skimp on details. Having a clearly defined strategy will be immensely helpful when you introduce your product/service to customers.
Businesses don’t run on good ideas alone; they require capital. If you’re an established business, you’ll want to include historical financial data, as well as projections for the next five years. If you’re a new company, you will only have projections.
The key statements to include are a balance sheet, income statement, cash flow statement, and capital expenditures budget. If you have a financial background, you may be able to prepare this yourself. If not, this is an area that you can seek outside help from an accountant.
The Appendix allows you to include any supplemental information that you deem necessary. For example, a rendering of a new product would be beneficial to include in the Appendix if that is the core focus of your startup. Only include information that is essential.
You may be wondering how much detail you’re supposed to go into and how long your business plan should be in length. The answer is that there isn’t a requirement. Some business plans are eight or nine pages. Others are forty pages. You can have a great business and explain it in eight pages.
Length of a business plan doesn’t dictate future success. Just like there is more than one great company in the world, there is more than one way to write a business plan. Don’t get hung up on conventions—rather release your inner entrepreneurial tendencies and create the plan that is right for you and your business.