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Details of the elements of a good Business Plan are:
C. Executive Summary
The executive summary should be the last element prepared when developing a
business plan. Unfortunately, most entrepreneurs try to begin with this
section. It should be a complete overview and refer to key attributes of the
venture that will entice target readers, usually investors, to read on and
learn more about your company's opportunity. There is a wide variety of
opinions on what an executive summary should include and how long it should
be. A good practice is to limit the executive summary to a maximum of three
pages.
D. The Market
A product or service is nothing without a market. Regardless of how
novel a product or service is, there must be a way to turn the need it
satisfies into sales revenues. The Business (section 5) describes the need
your products or services satisfy and how your company is uniquely suited to
deliver its offerings. The Market section supports the ability and
willingness of an outside party, a customer, to pay for the product. It also
addresses how the company will make targets aware and interested in the
product and how this interest will be converted into action. This section
should address three areas: Industry; Market Size and Growth Rate; and your
Target Market.
The Industry - This component should give a background or an
overview of the industry and segments that your product or service
competes in. A brief history of the market should be followed by trends
that support management's, and outside analyst's, assertions that the
market will grow in the near future.
Market Size and Growth Rate - The market size and growth rate
are natural compliments of an industry description. Often a company's
offerings compete in more than one market. For instance, a company that
provides a system integration application will probably deliver
consulting services. In such cases, it is essential that the size and
growth rates for the services market be separately noted from the size
and growth projections for the product market.
Target Market - After the size and rate of growth in the market
have been addressed, the next step in a business plan is often to
quantify and describe the segment, or segments, of the market that your
product or service is targeted towards. This includes noting how many
prospects there are, what they want and need, and any trends projected
to drive the purchasing patterns in the future.
E. The Business: 1. Description of the Business and Statement of
Purpose
In this section, provide a detailed description of your business. An
excellent question to ask yourself is: "What business am I in?" In
answering this question include your products, market and services as well
as a thorough description of what makes your business unique. Remember,
however, that as you develop your business plan, you may have to modify or
revise your initial questions. The business description section is divided
into three primary sections. Section (a) actually describes your business,
Section (b) the product or service you will be offering and Section (c) the
location of your business, and why this location is desirable (if you have a
franchise, some franchisers assist in site selection). When describing your
business, generally
Section (a). Description
- Legalities - business form: proprietorship, partnership,
corporation. The licenses or permits you will need.
- Business type: merchandizing, manufacturing or service.
- A summary of what your product or service is.
- Is it a new independent business, a takeover, an expansion, a
franchise?
- Why your business will be profitable. What are the growth
opportunities? Will franchising impact on growth opportunities?
- When your business will be open (days, hours)?
- What you have learned about your kind of business from outside
sources (trade suppliers, bankers, other franchise owners,
franchiser, publications).
A cover sheet goes before the description. It includes the name, address
and telephone number of the business and the names of all principals. In the
description of your business, describe the unique aspects and how or why
they will appeal to consumers. Emphasize any special features that you feel
will appeal to customers and explain how and why these features are
appealing. The description of your business should clearly identify goals
and objectives and it should clarify why you are, or why you want to be, in
business.
Section (b). Product/Service
Try to describe the benefits of your goods and services from your customers'
perspective. Successful business owners know or at least have an idea of
what their customers want or expect from them. This type of anticipation can
be helpful in building customer satisfaction and loyalty. And, it certainly
is a good strategy for beating the competition or retaining your
competitiveness. Describe: C What you are selling. C How your product or
service will benefit the customer. C Which products/services are in demand;
if there will be a steady flow of cash. C What is different about the
product or service your business is offering.
Section (c). The Location
The location of your business can play a decisive role in its success or
failure. Your location should be built around your customers, it should be
accessible and it should provide a sense of security. Consider these
questions when addressing this section of your business plan: C What are
your location needs? C What kind of space will you need? C Why is the area
desirable? the building desirable? C Is it easily accessible? Is public
transportation available? Is street lighting adequate? C Are market shifts
or demographic shifts occurring? It may be a good idea to make a checklist
of questions you identify when developing your business plan. Categorize
your questions and, as you answer each question, remove it from your list.
E. The Business: 2. Organization
Organization Managing a business requires more than just the desire to be
your own boss. It demands dedication, persistence, the ability to make
decisions and the ability to manage both employees and finances. Your
management plan, along with your marketing and financial management plans,
sets the foundation for and facilitates the success of your business. Like
plants and equipment, people are resources-they are the most valuable asset
a business has. You will soon discover that employees and staff will play an
important role in the total operation of your business. Consequently, it's
imperative that you know what skills you possess and those you lack since
you will have to hire personnel to supply the skills that you lack.
Additionally, it is imperative that you know how to manage and treat your
employees. Make them a part of the team. Keep them informed of, and get
their feedback regarding, changes. Employees oftentimes have excellent ideas
that can lead to new market areas, innovations to existing products or
services or new product lines or services which can improve your overall
competitiveness. Your management plan should answer questions such as:
- How does your background/business experience help you in this
business?
- What are your weaknesses and how can you compensate for them?
- Who will be on the management team?
- What are their strengths/weaknesses?
- What are their duties?
- Are these duties clearly defined?
- If a franchise, what type of assistance can you expect from the
franchiser?
- Will this assistance be ongoing?
- What are your current personnel needs?
- What are your plans for hiring and training personnel?
- What salaries, benefits, vacations, holidays will you offer? If a
franchise, are these issues covered in the management package
the franchiser will provide?
- What benefits, if any, can you afford at this point?
E. The Business: 3. The Marketing and Sales Plan
Marketing plays a vital role in successful business ventures. How well
you market you business, along with a few other considerations, will
ultimately determine your degree of success or failure.
For products or services that rely primarily on personal (face to face)
selling, a summary of how these efforts will be directed should be included
in a business plan. In cases where outside channels of distribution are
expected to play a significant role, a separate component of the market
section should be included to explain what the channels are and how they
will interact with the company.
The key element of a successful marketing plan is to know your
customers-their likes, dislikes, expectations. By identifying these factors,
you can develop a marketing strategy that will allow you to arouse and
fulfill their needs. Identify your customers by their age, sex,
income/educational level and residence. At first, target only those
customers who are more likely to purchase your product or service. As your
customer base expands, you may need to consider modifying the marketing plan
to include other customers. Develop a marketing plan for your business by
answering these questions. (Potential franchise owners will have to use the
marketing strategy the franchiser has developed.) Your marketing plan should
be included in your business plan and contain answers to the questions
outlined below.
- Who are your customers? Define your target market(s).
- Are your markets growing? steady? declining?
- Is your market share growing? steady? declining?
- If a franchise, how is your market segmented?
- Are your markets large enough to expand?
- How will you attract, hold, increase your market share? If a
franchise, will the franchiser provide assistance in this area?
Based on the franchiser's strategy? how will you promote your
sales?
- What pricing strategy have you devised?
Advertising and Public Relations
How you advertise and promote your goods and services may make or break your
business. Having a good product or service and not advertising and promoting
it is like not having a business at all. Many business owners operate under
the mistaken concept that the business will promote itself, and channel
money that should be used for advertising and promotions to other areas of
the business. Advertising and promotions, however, are the life line of a
business and should be treated as such. Devise a plan that uses advertising
and networking as a means to promote your business. Develop short,
descriptive copy (text material) that clearly identifies your goods or
services, its location and price. Use catchy phrases to arouse the interest
of your readers, listeners or viewers. In the case of a franchise, the
franchiser will provide advertising and promotional materials as part of the
franchise package, you may need approval to use any materials that you and
your staff develop. Whether or not this is the case, as a courtesy, allow
the franchiser the opportunity to review, comment on and, if required,
approve these materials before using them. Make sure the advertisements you
create are consistent with the image the franchiser is trying to project.
Remember the more care and attention you devote to your marketing program,
the more successful your business will be.
E. The Business: 4. Competition
Competition is a way of life. We compete for jobs, promotions,
scholarships to institutes of higher learning, in sports-and in almost every
aspect of your lives. Nations compete for the consumer in the global
marketplace as do individual business owners. Advances in technology can
send the profit margins of a successful business into a tailspin causing
them to plummet overnight or within a few hours. When considering these and
other factors, we can conclude that business is a highly competitive,
volatile arena. Because of this volatility and competitiveness, it is
important to know your competitors. Questions like these can help you:
- Who are your five nearest direct competitors?
- Who are your indirect competitors?
- How are their businesses: steady? increasing? decreasing?
- What have you learned from their operations? from their advertising?
- What are their strengths and weaknesses?
- How does their product or service differ from yours?
Start a file on each of your competitors. Keep manila envelopes of their
advertising and promotional materials and their pricing strategy techniques.
Review these files periodically, determining when and how often they
advertise, sponsor promotions and offer sales. Study the copy used in the
advertising and promotional materials, and their sales strategy. For
example, is their copy short? descriptive? catchy? or how much do they
reduce prices for sales? Using this technique can help you to understand
your competitors better and how they operate their businesses.
E. The Business: 5. Pricing Policy
Your pricing strategy is another marketing technique you can use to
improve your overall competitiveness. Get a feel for the pricing strategy
your competitors are using. That way you can determine if your prices are in
line with competitors in your market area and if they are in line with
industry averages. Some of the pricing strategies are:
- retail cost and pricing
- competitive position
- pricing below competition
- pricing above competition
- price lining
- multiple pricing
- service costs and pricing (for service businesses only)
- service components
- material costs
- labor costs
- overhead costs
The key to success is to have a well-planned strategy, to establish your
policies and to constantly monitor prices and operating costs to ensure
profits. Even in a franchise where the franchiser provides operational
procedures and materials, it is a good policy to keep abreast of the changes
in the marketplace because these changes can affect your competitiveness and
profit margins. Appendix 1 contains a sample Price/Quality Matrix, review it
for ideas on pricing strategies for your competitors. Determine which of the
strategies they use, if it is effective and why it is effective. You may
also need to address the risks associated with your pricing policy as well
as its benefits.
E. The Business: 6. Operating Procedures
Describing the business' operating procedures is a good way to discover
any key problems or omissions in the daily operations. The operating
procedures should be a fairly good description of how the business will
operate on a day-to-day basis. Each key process should be defined.
If a franchise, the operating procedures, manuals and materials devised
by the franchiser should be included in this section of the business plan.
Study these documents carefully when writing your business plan, and be sure
to incorporate this material. The franchiser should assist you with managing
your franchise. Take advantage of their expertise and develop a management
plan that will ensure the success for your franchise and satisfy the needs
and expectations of employees, as well as the franchiser.
E. The Business: 7. Personnel
E. The Business: 8. Financial Management
Sound financial management is one of the best ways for your business to
remain profitable and solvent. How well you manage the finances of your
business is the cornerstone of every successful business venture. Each year
thousands of potentially successful businesses fail because of poor
financial management. As a business owner, you will need to identify and
implement policies that will lead to and ensure that you will meet your
financial obligations. To effectively manage your finances, plan a sound,
realistic budget by determining the actual amount of money needed to open
your business (start-up costs) and the amount needed to keep it open
(operating costs). The first step to building a sound financial plan is to
devise a start-up budget. Your start-up budget will usually include such
one-time-only costs as major equipment, utility deposits, down payments,
etc. The start-up budget should allow for these expenses. Start-up Budget
- Personnel (costs prior to opening)
- Salaries/Wages and Employer Payroll Tax Expenses
- Legal/Professional Fees
- Occupancy - Rent, Upfitting, Displays, Security, etc.
- Licenses/Permits, Incorporation
- Equipment & Furniture
- Insurances - General Liability, Facility, Workman's Comp, Errors
& Omissions, etc.
- Loan payments
- Supplies
- Advertising/Promotions
- Accounting and Legal
- Computer Systems, Software, and Network
- Accounts Receivables Income Collection
- Utilities - Deposits, Hook-up Fees, Initial usage
- Security
An operating budget is prepared when you are actually ready to open for
business. The operating budget will reflect your priorities in terms of how
your spend your money, the expenses you will incur and how you will meet
those expenses (income). Your operating budget also should include money to
cover the first three to six months of operation. It should allow for the
following additional expenses. Operating Budget:
- Depreciation
- Miscellaneous expenses
- Dues/Subscriptions/Fees
- Taxes
- Repairs/Maintenance
The financial section of your business plan should include any loan
applications you've filed, a capital equipment and supply list, balance
sheet, break-even analysis, pro-forma income projections (profit and loss
statement) and pro-forma cash flow. The income statement and cash flow
projections should include a three-year summary, detail by month for the
first year, and detail by quarter for the second and third years. The
accounting system and the inventory control system that you will be using is
generally addressed in this section of the business plan also. If a
franchise, the franchiser may stipulate in the franchise contract the type
of accounting and inventory systems you may use. If this is the case, he or
she should have a system already intact and you will be required to adopt
this system. Whether you develop the accounting and inventory systems
yourself, have an outside financial advisor develop the systems or the
franchiser provides these systems, you will need to acquire a thorough
understanding of each segment and how it operates. Your financial advisor
can assist you in developing this section of your business plan. The
following questions should help you determine the amount of start-up capital
you will need to purchase and open a franchise:
- How much money do you have?
- How much money will you need to purchase the franchise?
- How much money will you need for start-up?
- How much money will you need to stay in business?
Other questions that you will need to consider are:
- What type of accounting system will your use?
- Is it a single entry or dual entry system?
- What will your sales goals and profit goals for the coming year be?
- If a franchise, will the franchiser set your sales and profit goals?
- Or, will he or she expect you to reach and retain a certain sales
level and profit margin?
- What financial projections will you need to include in your business
plan?
- What kind of inventory control system will you use?
Your plan should include an explanation of all projections. Unless you
are thoroughly familiar with financial statements, get help in preparing
your cash flow and income statements and your balance sheet.
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