In our first Business Basics post, we talked about the importance of a business plan. But what exactly goes into a business plan and how do you begin tackling such a document? While plans vary based on the business, most follow the same basic structure.
Cover Sheet & Table of Contents
Your cover sheet (also known as the title page) should include your company logo and primary contact information, as well as the date the plan was last updated. Immediately following this page, include a table of contents to make it easier for others to navigate the document.
Executive Summary
The executive summary is the first impression readers have of your business. It should show where your company is, where you want to take it and why it will be successful. It is such a critical component to the business plan investors might even ask to see your executive summary before the rest of the document. As a result, this piece should be able to stand on its own.
The executive summary may be easier to write once you have completed several, if not all, parts of your business plan. Learn more about how to write a successful executive summary.
Company Description
It may help to think of this section as a written elevator pitch. In two paragraphs or less, give your company’s background, the market it will reach, the problem your product or service will solve and the current status of your company.
Product or Service Description
This section should answer the question: Why is this product or service valuable to your ideal customer? Include detailed information about the market you aim to serve, how you can meet customer needs, the advantages your product/service has over others and your current stage of development. In particular, include any copyrights or patents, research and development efforts, and specifics about the product’s overall life cycle.
Market Analysis
Describe your industry, including its current size, growth rates, and other trends or characteristics you feel are important. What is your target market? What are the characteristics of those in that market—their needs, location or purchasing trends? How big is your market? Knowing this will help you to predict things such as purchase numbers and company growth.
In addition, your market analysis should include how much of the market share you plan to gain, as well as a detailed explanation of how you got your numbers. Finally, list your pricing tactics, including gross margin levels and any discounts you plan to utilize. The US Small Business Association has a great market research guide to help you learn more about the trends and characteristics of your target market.
Competitive Analysis
This analysis should highlight any applicable markets for your product and note the competitive offerings in each. What are their strengths and weakness ? How does your competitor directly serve the needs of your target market? Does your competition create any major barriers to you entering the market? Are there any indirect or secondary competitors who could hinder your success?
Plan to revisit this section over and over again. You will often be compared to the competition: “Oh you’re like Company X!” When this happens, you can be prepared to show your similarities and differences, as well as what makes your solution the better alternative. Create a comparative chart to help readers quickly see the advantages your company has over the competition.
Marketing/Sales Strategy
While often overlooked, this section is an important component of your plan. How will you get your company’s name and product out there? Outline your marketing strategy, including your marketing budget, brand, product packaging, distribution plans and pricing. Also, establish benchmarks for rolling out marketing campaigns and promotions.
Sales efforts go hand in hand with marketing. With all the tools in the world, your business won’t sell itself, so elaborating on your sales approach is critical. How would you define your customer? How will the company generate a pipeline of prospects, and how will it convert prospects into qualified leads?
Organization & Management
This is the “who does what” section of your business plan where you can outline the overall structure of your company. This information lends itself to be organized using charts and graphics to give potential partners and investors a concise picture of how your business operates while also highlighting individual talent.
Provide detailed descriptions of what each department and person’s responsibilities. You should also include the legal structure of your business, such as ownership limitations or partnerships. Essentially, this section should convey a sense of security in the overall operations. Even if you are running a two-man operation, it’s important to describe who does what.
Financial Analysis
This is a brief snapshot of your company’s financial performance. You also need to include prospective financial data, showing what you expect your company’s performance will be over the next five years. Graphs and charts can quickly show your past, present and future financial state. In the end, most investors are looking at the top line revenue numbers, how the company plans to make those numbers and what assumptions were used to get those projections.
Exit Strategy
Your exit strategy needs to outline your plan for leaving your business. Will you sell? To whom? When? Are you looking to be acquired? All of these details should be planned in advance and shown in the exit strategy portion of your business plan, which we will cover in another installment of Business Basics.
Appendices
You may find that you want to include documents related to your overall business plan which don’t seem to fit comfortably anywhere else. These could include credit reports, letters of reference, résumés and other pertinent documents.
There’s no strict rule as to how long business plans should be, but they generally range from 15 to 25 pages in length. Keep things as brief and to the point as possible and include charts or figures wherever possible to make the process of reviewing your plan easier on the reader. Proofread the plan for any unclear statements, typos or grammatical errors. Be sure the formatting (including fonts and spacing) is also consistent and makes the plan easy to read, especially when the plan is printed.
This is a living document, so continue review and update it as your business grows. But remember to make sure you always have a completely polished version of your business plan ready. A sloppy business plan could be associated with a sloppy business. And, since the business plan is the first impression an investor will have of your company, you want it to be pristine.