For many, the process of creating a business plan seems daunting, but that doesn’t have to be the case. We’ve done the research for you. We’ve searched the statistics, journals, and reports within the Small Business Administration‘s website to give you the outline for what should be in a good business plan. Use this business plan as you create your company, restructure your company, or do a yearly review within your company to increase revenue and company cohesiveness.
Why is a good business plan so important? Is it just to make “more” money? No, it’s vital to sustaining your business! According to recent reports, over half a million businesses start each and every month, but only one-third of those businesses make it to their five-year anniversary. One of the key reasons businesses fail is that owners do not create and follow a business plan. This all-important document synthesizes all business goals and outlines steps the company needs to follow to meet those goals. In essence, the document serves as a business blueprint for how the business should run and act.
In the first section, you will want to give a little review of what you do. When the readers see your plan, they should get the gist of your business with this small introduction. Here, you will include;
After the company description, you will present the findings of all market research. It will answer:
Description and Outlook – Firstly, you will need to have a brief description of your industry, its historic growth rate, and any other trends. In addition to this, you need information on the customer groups.
Target Market – When you first started your business, you have a niche in mind. State who the target market is. Additionally, you will include as much information as you can about your target market including past sales and forecasted growth.
Key Characteristics – Here, you will state the primary needs of the consumer. Are there trends that affect your business? Are their needs met currently?
Potential for Market Share – Are there a couple of large brands that will be hard to overcome or will you immediately see a percentage of market share?
Price and Gross Margin Targets – What are your prices and do you plan to offer discounts? By using the results of your research, a pricing structure is created.
Competitive Analysis – Here, you will show information regarding your competition within the market. You should be assessing market share, your chances of entering, indirect competitors, barriers that you will come across, strengths and weaknesses, etc.
Regulations – Finally, are there any restrictions by the consumers or government that will affect your operation? Of course, you will need to state the impact of these and how you will comply.
SUPPLEMENTAL READING: Conducting an In-depth Market Analysis
In this section, will need to discuss your actual business regarding the structure, ownership details, management team, and board of directors. Essentially, this will be a guide to your business and who does what. Why did you decide to bring this person in and what are their responsibilities? Even if you are a two-man show, this information is important because the readers need to know who is in charge.
When the reader sees this document, they need to know about the board, their potential longevity, salaries, benefits, incentives, promotions, and more.
Organizational Structure – Although it seems simple, the easiest way to present your organizational structure is a chart. A chart offers a simple, easy-to-read, structure, leaving no doubt who is in charge. For the investor, they can see that everyone has a role and everyone knows their place.
Ownership Information – Here, you will need to look more towards the legal structure and the information regarding ownership. Are you a partnership? Have you incorporated? Are you a sole trader? In your plan, you should look to include the following;
Often, large businesses lose track of the management team, so you will need to show that you’re in control and everyone knows their position. By using the above and resumes, you are showing this and their skills to perform too. When attaching resumes, make sure they include everything a resume will normally hold as well as industry recognition, involvement in the community, time with the company and their roles, compensation options, and their track record. Also, make sure that all achievements are quantified. Rather than ‘increased sales over time,’ it needs to be ‘increased sales by 20% in the first six months’.
In addition to this, you could also include information on how each person contributes and how they complement your skill set.
Board of Directors – More often than not, this is a forgotten section of a business plan but can be vital. As soon as an investor or body sees the skills of the board of directors, they can ease fears and feel better about the business. When completing this section, ensure to include the following:
Next, you will have to describe the actual product or service that you will be manufacturing and offering. Not only why the average consumer will benefit, why it fills a need in the market.
Description – Firstly, you will have to describe everything from a consumer’s perspective. What is it? How does it meet the needs of the customer? Why is it different to what competitors are offering? What stage is the product at currently?
Life Cycle – If you were to launch right now, how far away from selling would you be? While you may just have had an idea, you could also have a prototype or even have the product ready.
Intellectual Property – For many, this section is vital because it enables you to list any pending or granted copyrights or patents. Furthermore, you could also include trade secrets. Finally, are there any legal agreements relating to the product or service?
Participation in R&D – If you have already carried out research and development (R&D), you can state what the results were. If you haven’t, you need to discuss your plans to invest in this in the future.
In this fifth section, you start to move towards how you will market your business. It’s also important to note how you will implement any sales strategies. Without customers, there is no way that any business can survive, so you will need to discuss how you plan to market your products and services to make sales. At first, there will be no final solution that sticks for years to come so how you will adapt? How will you cope with the ever-changing world of technology? With this, there are some general pieces of information to include in the marketing strategy;
Once you have this, you can then move onto your sales strategy, and there are two key points to this;
For many investors, if all of the information looks good so far, this section could make or break their decision. Explain what your needs are regarding funding, any additional funding required over the next few years, how the funds will be used, and strategic financial plans you may have for the future. If you lack any of these pieces of information, you are putting your business at a disadvantage. Investors and banks need to know what the money is for. They also need to know if you are planning to be bought out or sell your business completely.
Although it is incredibly easy to get drawn into details, simplicity is best. You should keep the numbers as basic as possible. Clearly lay out this section of the document out so that the reader knows what money you need now. Separate it from what money you need in the future. Define exactly how long each portion of the money will cover. Also, state some terms that you may have here too.
If you have reached this point, you only have three main sections to go, but they are just as important as the first six. Here, you will need to include a list of financial documents including;
Historical Information – If you have been in business for a while and are just looking for some funding, you need to provide up to date performance data. Although most will ask for around three to five years worth of data, this will change depending on how long you have been in business.
Not only should you include the income statements in this section, but you should also look to include your balance sheets, and cash flow statements for the years requested. In addition to this, creditors may also have an interest in collateral even if you are a new startup.
Prospective Information – Furthermore, lenders will want to view what you expect the company to achieve in the coming years. As well as the documents mentioned earlier, you should also include your capital expenditure budgets. Detail is important here as it may not be important to do monthly reports for the next five years; for the first year, monthly is advisable but you can usually spread them out a little further after the twelve month point.
If you have any inconsistencies, this will look unprofessional. So make sure that the projections match your requests. If you have had to make assumptions, make the reader knows that these are assumptions. Then, you can finish this section off with a summary of your financial position. Using ratio and trend analysis for the data, you can use imagery in the form of graphs and charts to catch the eye.
Although you should not include this section with the main plan, prepare it and give to readers if needed. In the appendix, you would normally see; credit history of both the business and the owner, market study details, pictures of products, reference letters, permits for building, copies of leases, contracts, patents, magazine articles, resumes of other staff, and more. This is a section that provides proof for some of the claims you made in the main bulk of the plan.
If you do happen to hand this information out, keep a record of who has a copy because it could withhold private information. If possible, include a private placement disclaimer with your plan.
Arguably the most important section of all is a business summary” Justin Goodbread, CPA®, CEPA® Click to tweet
Arguably the most important section of all is a business summary. It explains where your business is currently, where you wish to take it, and why you believe that it is possible. Through the executive summary, the reader should feel your passion and learn your strengths. Even though it often appears at the very beginning of the plan, it should be the last thing that you write. It highlights the key points of the plan and brings it all together.
Of course, the information you include will depend on how old your business is, but an established organization should contain:
In all, present this information on one page excluding maybe the mission statement. As it is the first thing that anyone will read, every word needs to contribute something. This is all well and good for established businesses but what about startups? In this case, far less information will be available. So you will need to focus on you as a person a little bit more. As well as discussing your experience and background, let the reader know why you have started this business.
As long as you demonstrate your extensive market research, there is no reason to be in a worse position than a more established business. In truth, a gap in the market is still a gap in the market. Regardless of whether you are attempting to fill it for five years or five days. If you have the solutions and provide investors with the opportunity to fill this gap, you will be in a strong position.
As mentioned earlier, there are now more new businesses every single year than we have ever seen before. This means more new business plans. Therefore, yours needs to stand out in the crowd. However, how is this done? In truth, clarity plays a huge role.
Once you remove the products and services out of the way, what are you selling? For example, each town now has, say, a dozen restaurants. However, they all offer something different and therefore have a very different clientele. Whereas one might sell Chinese food, another might sell Italian pizza. In essence, all of these restaurants are the same business, and they all have the same goals but they offer something unique from one another. When you strip everything away, they are really selling a combination of multiple different things – product, experience, value, ambiance, and more.
Whether you are just starting or have had a business for five years, you need to know what makes your idea unique. Otherwise, why would any consumers choose you over the competitors? As soon as you define what you’re selling and find your USP, move away from the ‘jack-of-all-trades’ model and opt to master one instead. When a business is small, divide the products and services according to their niches, and they all add something to the market. Without this, the proposition isn’t attractive.
In order to succeed, every company has to find a niche and then operate within this small area of the market. Even if it requires simple market research to identify consumer needs, you will soon identify where your competitors are strong, where your competitors are weak, and potential opportunities for you to explore. When you have this information, you can find your niche within the market. As for the business plan itself, clearly lay it out, and the reader sees exactly what you see.
There you have it, the complete guide to what should be in a good business plan. Ultimately, this document could be the difference between success and failure, securing an investment and failing to get funding. So spend time on it and contact a professional if you feel as though you need the help!