A Business Plan is a documented representation of where a company wants to be going, how it will get there and what it will look like once it arrives at the market. Business plan serves as a preferred tool of communication between the entrepreneurs and potential investors. In fact a business plan is an indispensable management tool can greatly improve a company’s ability to consistently establish and meet goals and objectives in a way that best serves the company’s owners, employees, and investors.
A business plan can take many a forms ranging from a glossy, professional document to a hand-written manuscript that serves to primarily document the goals & strategies of a company.
Usefulness of a Business Plan
Being a valuable management tool that it can be the Business Plan finds its importance when companies:
• Set goals and objectives for monitoring their performance
• Require a base to evaluate and control the performance
• Communicate its message to middle managers, outside directors, lenders, and potential investors
When the business plan is more effectively utilised with slight modification it can serve all the above 3 mentioned zones.
Let’s understand each of the 3 points mentioned in detail:
Set goals and objectives for monitoring their performance
This is more apt and suited for an entrepreneur at an early stage to attempt at strategic planning. Here the business plan acts as a tool to setting the road map over the next 3 years atleast to develop the plan of action and processes to guide the company in this period. Of course, writing a business plan is not a guarantee that problems will not arise. But, with a thoroughly thought-out plan, a business owner can better anticipate a crisis situation and deal with it up front. Further, a well-constructed plan can help avoid certain problems altogether. All in all, business planning is probably more important to the survival of a small and growing company than a larger, more mature one.
A business plan can provide you and your management team insights with an objective for determining if the business is on track to meet the goals and objectives you have set.
Communicate its message to middle managers, outside directors, lenders, and potential investors
A company’s background and its story must be retold many a times to prospective investors, potential and new employees, outside advisors, and potential customers. And the most important part of the story is the part about the future, the part featured in a business plan. It must distinctively communicate a company’s competence to anyone who is interested in being associated with you.
Steps involved in developing a Business Plan (Sixer Steps!)
Be it the maiden attempt or the nth attempt at developing a business plan the following steps could orient your ideas to channelize in the right direction:
Step 1: Identifying your Objective
Narrow down as to who is going to ultimately review this business plan and for whom this business is plan intended to serve. Some of the start points could be: do the readers know your company already, if so what do they know, what information are they specifically seeking in this business plan. Once the target reader of this document has been narrowed, decide what you want to communicate to the reader. If these points are clear then most conflict points have been taken care for starters.
Step 2: Outlining the Business Plan
This after the objective identification of the business plan and the area of emphasis, prepare an outline that addresses on the special requirements. This outline could be general or a detailed one as desired by you but a general will keep it more flexible for further section to better detail contents.
Step 3: Reviewing the Outlining
Here your business plan should describe your company at a high level and that extremely detailed descriptions are to be avoided in most cases. However, you must be prepared to provide detailed support for your statements and assumptions apart from your business plan if necessary.
Step 4: Ordering your thoughts and plan for writing
Here the age of your company and your experience of having dealt with a business plan earlier will play a vital role in the ordering of the elements to be present in the plan. A lot of research on various areas needs to be done before you start assembling them into your plan.
The majority of the lot try their luck with collecting historical financial information about the company or the industry into which the company is or shall be into before actually writing anything into the plan. Even though you may do extensive research before you begin to develop your plan, you may find that additional research is required before you complete it. You should take the time to complete the required research because many of the assumptions and strategies described in the plan will be based on the findings and analysis of your research. This is do more until you have all!
Drafts of prospective financial statements are often prepared next, after the basic financial and market research and analysis are completed. This forms the base for a good strategy that will work from the financial perspective. Also keep the detailed notes on the assumptions you are keeping in mind while the prospective statements are being developed and the composition of the elements that shall go into the business plan.
The last element of a business plan is the executive summary as it contains the overall essence of the plan and its contents are contingent on the rest of the document.
Step 5: Reviewing your plan
At this stage it is time soon after you have completed and reviewed you draft plan to have a third eye review of your plan for its completeness in terms of having addressed all points, in terms of logical connectivity, objectivity, cohesiveness, clarity and effectiveness to speak for itself as though it were talking on your behalf about your company. Based on the reviewer feedback try to revamp the necessary changes.
Step 6: Updating your plan
As business plans are “living” documents they must also be periodically updated to keep it up-to-date as the environment, the readers and sometimes even the objectives could change.
Key Components of a Business Plan
I. Executive Summary: This is to be seen as a section that underlines the company’s core distinctive competence-that spells success of your business in a competitive environment. The information at a high level to be covered in the executive summary shall be:
• The purpose why and for whim is this is being created
• Market Analysis
• About the Company
• Marketing and the sales activities to be carried out
• About the product/service research development that has been going on
• About the Organization set-up the key personnel involved
• Financial Data in terms of the requirement and the history in addition to justifying the need for funds.
In list the executive summary shall not exceed more than 3 pages and in brief provide an overview of the entire business plan to follow as a prelude to the big picture behind!
The executive summary section shall be followed by a brief table of contents to assist the readers about the section s that are to follow subsequently. If this is a new company, be almost confident to capture your to be investors at this stage as there is a good chance they may not look beyond this if the basic question “what is in for the investor here”?
II. Market Analysis: This is a typical reflection of the knowledge one possess about the industrial knowledge and the highlights based on the analysis done. In fact, detailed market research can be a separate addendum that complements your business plan that shall have the following information in it:
• Industry Description that details about the industry this company shall be into, size of the industry as a whole to show potential for growth and the past& future trends. Also the customer groups that this company shall serve.
• Target Markets where penetration can happen or if the market is ready to accept another entrant, number prospective customers for this product/service, the expected penetration, ways to identify your potential customers, channels to reach the customer, needs and the future trends
• Marketing test results showing potential customers contacted, their reaction to the product/service, satisfaction levels and the business traction as a whole through pilot tests and feedback.
• Lead time between order placement and fulfilment
• Competition in the space, SWOT Analysis, Barriers to enter into that space.
• Are there any regulatory or specific requirements that need more attention or importance or any anticipated changes in regulatory aspects?
III. Company Description: This section contains all elements that fit together in defining what the company does and has information like:
• Nature of business and where this is to be in, whether it is serving individuals or organizations or both
• Those factors that could weigh to your success such as addressing a specific type of customer in need of your product/service, production/process efficiency, personnel involved, geographical location
IV. Marketing and Sales Activities: This section details how your company is to meet the sales and margins as indicated in the financial statements. This will include:
• The overall marketing strategy including the growth planned for and ways to reach that, how the organisation is planning to reach and penetrate the market, the distribution channel in mind(Original equipment manufacturers, Internal sales force, Distributors or Retailers) and the communication medium to reach out to the customers.
• The sales strategies include the resources planned, their sizing and compensation and the KPI’s to be included to monitor the business performance.
V. Products & Services: This section emphasizes on the type of product/service that will be provided by your company. Avoid turning this section of your business plan into a policies and procedures manual for your employees by seeing it more from the user perspective. The details that shall goes into this section are:
• Specific benefits offered through this product/service
• The capability to meet the needs
• The current stage of this business
• The description of product life cycle and factors that might speedup or shorten the life cycle
• Information related to the copyrights, patents or trademark associated
• The Research and development activities behind and the product/service lines planned or innovations in store.
VI. Operations: Again rather than detailing too much that could dilute the end user reader perspective this section shall have information related to:
• Production and service delivery procedure including the sub-contractors
• Production and service delivery capability addressing the increase in capacity handling and the timing to reach the customer
• Economy of scale, experience, ways to lowering the direct costs and the advantages to be brought into operating it competitively.
• Supplier related information, the lead-times involved, risks involved and the type of contractual relationship planned.
VII. Management & Ownership: The management’s skill experience and talents that will be brought to this business are to be penciled as a unique aspect. Here while pitching to external investors the management’s skillset will play a vital role and indicate why they are a part of your company’s distinctive competence that cannot easily be replicated by your competition as individuals invest in people, not ideas! The section has the following contents:
• Management Organization Chart
• Key Managers’ resume to be included in the Appendix section
• The recruitment of the key personnel and their salaries as per the prevailing standards, their roles and responsibilities and the timing of their induction to the set-up
• Legal entity that the company be floated as (LLC, Corporation/Pvt. Ltd/ Proprietorship)
• Owners who are to run this business, percentage of ownership, extent of involvement
• Board of Directors to be involved and their back ground and achievements in the past
VIII. Fund requirements and their planned usage: Any need for new or additional funds have to be provided in this section. In case there is a real need to include other sources of funds from other investors you may include otherwise neglect. Specify:
• Current funding requirements in terms of amount, timing/period over which you may need this along with the terms, the funding requirements over a 3/5-year period and how we plan to use these funds and spread over the period and the long term strategy planned like going public, acquisition by another company, leveraged buy-out
IX. Financial Data: This is a collation of all financial data discussed somewhere in pieces in all other previous sections. The details to be brought under the ambit of this section shall be:
• Past historical financial data (if available)
• Cash flow planned to come into the business over the next 3/5-year period
• Summary of assumptions taken while calculating
• Prospective forecast and projections
• Trend analysis
X. Appendices or Exhibits: Any detailed or not so appropriate information related to the users but if required for additional read can be included in this section. This shall be made available as a separate section and the other sections could have mentioning indicating this section if they need additional information feed. Some of the details that could go into this section are:
• Resumes of key personnel
• Product images
• Professional references
• Market studies
• Magazine articles or books referenced
• Important Contracts
Keeping all the above points in mind and content developed as a business plan ensure to have controlled copies created and distributed. In fact, these plans shall include ethical disclaimers that limit the ability of individuals distributing or otherwise copying the plan without the consent of the company’s owners. Remember too that an appropriate private placement disclaimer should be included if the plan is being used to raise capital.