Introduction to How Business Plans Work
So, you've decided to start your own business! You've weighed the risks and decided it fits your life goals and will be challenging and hopefully rewarding. Whether you're starting from scratch or buying a franchise, a lot of thought and planning needs to go into it before you can hope to make it successful. One very necessary tool that can help you cover all of the bases before you take the plunge and leave that reliable bi-weekly pay check, is a business plan. Even if you're not seeking investors in your business, you need to invest the time and effort involved in writing a business plan. While business plans are certainly a requirement for new businesses seeking outside funding, they are also a terrific way to map out your strategy. Think of the business plan as a roadmap. The road map not only lets you see exactly where you are, but where you're going to be, and what you may see along the way. While it may not be heavy on the details, it is definitely a necessity if you want to get to where you are going!
In this article, we'll look at how to put together a business plan that can help you lay the foundation for your business, improve your chances of being successful, and generate enthusiasm and excitement about the business whether it's being written for those funding it, or for yourself. We'll answer your questions about what has to be covered in the plan, how to do research, how to make realistic projections, how to set milestones, and hopefully answer the hundreds of other questions that will pop into your head as you begin the planning process.
That planning process, by the way, is part of what makes putting together a business plan so important. The act of thinking about everything that must go into the plan will force you to think through the logistics of your business venture, and perhaps even come up with some ideas you hadn't considered before! You may even end up using many of the "selling words" you come up with for your business plan in your marketing efforts.
A Few Guidelines
Where to Start
The plan you write will set the scene for your business. You'll set concrete goals that include deadlines, think through your HR organizational scheme and assign responsibilities, as well as describe the business and make your financial projections. One thing to keep in mind before you begin, however, is to set realistic goals. Don't set yourself up for failure before you even leave the gate! Also, make sure your plan is results-oriented. In other words, your plan should influence opinions (even if only your own) about your business and its future. So with that in mind, let's get started.
Pre-Plan Planning
Because all businesses are different, and business plans are written for different reasons, the first thing to think about is whom you are writing for. If you are planning on using the plan to get funding then remember that as you write, being sure to get the business's most important message across immediately. Also, if you're approaching lenders rather than equity investors your projected profits won't be nearly as important. (They often associate high projections with high risk!) Know your objectives and strategies before you tackle the business plan. Remember, your objectives should be specific, concrete, and measurable; and your strategies should clearly explain how you're going to meet your objectives. Finally, keep it clear and concise, and ideally no more than 15-30 pages with attachments. Just remember KISS (keep it short and simple). Once complete, the business plan is something you should refer to often and update and change frequently to meet the changing environment of your business.
Plan Elements
Your plan should include information that falls into these categories:
Your Product/The Business
The Market
Financials
Your Management Team
If you're reviewing many of the business resources available, you'll quickly notice that every business plan outline will be slightly different. Just make sure you cover these basic categories, include an executive summary, and then add other sections that seem necessary for both the audience of your plan and your own personal use.
As we cover the steps in writing a business plan, we'll also write a plan a for a fictitious PDA software company. Watch for links to the fictitious plan at the end of each section. Now, let's go over the Executive Summary.
The Executive Summary
Usually, the first section of a business plan is the Executive Summary. This summary is often the most important part of your plan if you are seeking funding (and sometimes even if you aren't) because it provides a quick overview of everything else in the plan. Often this summary is the only chance your plan gets when it's in a stack with hundreds of other plans vying for the same investor's attention.
Although it comes first in the business plan, the executive summary is usually written last, after you have ironed out all of the details of your plan. So, once you have the meat of your plan written, come back to this section and write your executive summary.
The executive summary should briefly cover:
Statement of purpose -- The objectives of the plan... (i.e., to raise money, act as a policy guide, etc.)
Company background
The company's product or service
Strategy overview -- Why the product or service is unique
The market potential -- Research findings
Financial projections for at least 3 years into the future
The qualifications of the management team
Finance requirements -- How you plan on spending raised capital
Make sure you state in the summary why your business will succeed. You can also include your mission statement in your introductory/executive summary.
The Business Profile
Legal Structure
Briefly explain the legal structure of your company. Is it a proprietorship, a partnership, a corporation or any of the other variations of these models?
Business/Concept Summary
Give your reader the "Big Picture" in this section. Explain the business opportunity you've seen in the current market. Give an overview of the industry and explain why your business is unique, as well as why it will succeed. Describe your product or service in a non-technical way, focusing on what you are doing that will make your product stand out in the marketplace. For example, you may have noticed your competition's products do not meet the needs of certain markets, so your strategy is to create a product that does meet those needs in order to reach those untapped markets and gain a stronger competitive advantage. Make sure you make this type of strategy pop out in this section.
Describe both the present industry scene, as well as future projections. If you find that you can't describe your business clearly and simply, then you probably have not thought it through. If this is the case, stop where you are and take the time to mull through all aspects of your business idea from start to finish until you've boiled it down to its essence.
Current Situation
Explain where you are with your business right now. For startups this should be a short explanation that simply states whether you have a product, or simply an idea, and the stage you are at in its development. For existing businesses, this means explaining your background, current sales levels, and standing in the market.
Objectives
List the objectives of your company. For instance, do you want to become one of the top ten companies in your industry within the next four years? Do you want to have a staff of ten within the next two years? Do you want to gross $XX by year five. Do you want a positive return on investment by the end of the second year? Keep them specific and measurable.
More next time.
