Guide to Creating Your Business Plan

Commonly compared to a blueprint used by builders and architects, a business plan is a guide to putting together your business. It helps you put all the pieces in place and clearly envision the possibilities for the future of your endeavor. You should be able to look at your business plan and see what resources and capital you will need to get started.

Typically, the process of studying the market and putting your business plan together will allow you to clearly see where your business will fit in the marketplace, where your profits should come from and how long it should take to see such profits. Most significantly, your business plan can help you attract investors, who can clearly see on paper, how your vision will translate into a practical business venture and compete within the industry.

Within the plan, you will include a financial section with a breakdown of your startup costs, a break-even analysis and a projection of your profits and losses. By carefully working your way through the details of your financial plans and projections, you will be able to determine:

If starting the business is a good idea
Whether or not you can expand or need to minimize the scope of your business
How much time and money it will take to realistically make your plan work

Often, a business plan provides the owner(s) with the first and most detailed breakdown of their ideas in black and white. It is useful to see, on paper; how all of the details come together to formulate the overall plan and ultimately should help you determine how to proceed. You will likely be able to pinpoint potential problems and make necessary adjustments in advance or even abort the plan completely if the financial picture does not look promising.

And finally, unlike a blueprint, which usually remains somewhere buried in the archives, the business plan should be a viable tool once the business is “up and running.” During the life of the business, your business plan can:

Help you maintain your original vision
Help you manage your ongoing business operations
Provide the basis for a tracking system, which will enable you to evaluate the progress of your business

While the size and complexity of a business plan will vary greatly between a small one-person business venture and the formation of a new multi-million dollar enterprise, the principle remains the same. Putting something on paper to guide you through the process of creating, evaluating, establishing and running the business and to show potential investors why they should back your business venture.

Key Sections of a Business Plan

Some business plans will run four or five pages, while others will be forty pages. The complexity of the business and details necessary to present a thorough picture of the business will define the appropriate length of your business plan. Regardless of the length of the plan, the same key elements need to be included. In addition, all business plans should be proofread, carefully reviewed for clarity and presented in a professional manner with a cover page, table of contents and all appropriate contact information. Appendices can be included to provide additional data and supporting information.

The Executive Summary

Although it appears at the start of a business plan, typically the executive summary is written last, after other sections have been written, evaluated and reworked to make sure the overall plan is sound. The executive summary provides a short (usually one or two page) overview of the rest of the business plan. It is often considered the most crucial part of the plan because it is the first section your readers see and is designed to capture their attention and draw them into reading further about the business endeavor.

The executive summary will touch on all of the areas of the plan that follows, including:

The overall objective of the business
What makes the business unique or distinctive
The experience of the management team
The target audience
Future aspirations
How the business will operate
The current competition in the market
Costs and financial projections

This last section is written primarily for funding purposes, although it also provides you, as the owner, with a capsule summary of all that needs to be addressed. Subsequently it can also help when marketing and promoting the business.

A strong executive summary should be concise and engaging. It should invite the prospective investor to read the rest of the business plan.

Company Description or Business Overview

Unlike the executive summary, which needs to be concise, this is where you can elaborate on the details of the business. Typically, for a new business, this section is used to explain your vision and goals for the business venture in practical terms. The who, what, where, when, and why of the business should fall into place and readers should have a clear understanding of how the company will function. Existing businesses looking to procure further capital use this section as an overview of the company, explaining how it is run, how it makes money and what plans are in place for the future.

Details that prospective investors will likely want to see in this section include:

The legal structure of the business (sole proprietorship, corporation, etc)
Formation of the business (new venture, buying an existing business, franchise, etc.)
Type of business (manufacturing, retail or sales, service or a combination)
Potential for profitability (how you will make money)
Location (where you will be based)
Means of doing business (internet, storefront operation, mail order)
Time of business operations (open daily, seasonal, specific hours, etc.)
Resources (what you will need to get started and operate, from machinery to computers to manpower)

By the end of this section, the reader should understand why you believe this business will work. There are many varieties on a theme, and this section can include other details such as how this business idea initially came to fruition or opportunities you see for growth and expansion.

Products and Services

This section describes the products manufactured or sold, or the services offered. Classify the different types of products or services and provide a brief description of each. Indicate why you have selected to market such products or services and the need you fulfill for your prospective customers. If you are manufacturing products, you will also need to describe a cross section of products and the materials you will use to make such products. Service providers need to include the full range of services that will be provided, their benefits to the target market and then include any products that they sell in conjunction with their services.

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The key to writing the products and services section is explaining the significant benefits of your products or services and how they provide something other than that which is currently available from competing companies. You want to provide sound reasoning for manufacturing or selling a product or service.

Market Information

Market information describes the larger picture of the industry in which your business will compete. This sets a framework so that investors will see what piece of this market you will be able to capture and from where you will build your customer base. It also provides you, as a business owner with an opportunity to carefully research and evaluate the industry to better determine how you can make an impact.

Market information must be:

Timely
Accurate
Easy to read and understand

Furthermore, you should present:

An overview of the market
Trends and changes in the market
Niche markets or segments within the larger market
Your target audience
The needs of your target audience
How you will impact on those needs
How you anticipate the market will change over the next two, three or five years

Your market information should correlate with the products and, or services you have presented above.

Typically, in this section you will take an overall look at the industry and include broad based industry information. Then you will follow it up with specific geographic and demographic data. For example, the owner of a new health club can provide information and statistics about the health industry on a national level but should then discuss the industry and demographics specific to the geographic area in which he or she is planning to open the new health club or clubs. Charts and graphs can be advantageous in illustrating trends and growth patterns in the market.

Business Plan Do’s & Dont’s
Do:
Provide a compelling, concise executive summary
Highlight the experience of the management team
Differentiate your products from competitors
Provide an explanation of a large market opportunity
Don’t
Use superlatives
Make unsubstantiated claims
Over-estimate financial projections
Use hearsay or rumors about competitors (use fact-based information only)
Provide an inaccurate portrayal of the market or industry
Make sweeping generalizations

Competitive Analysis

Business is competitive by nature and to succeed it is vital that you research, understand and evaluate your competition. This will provide investors with a clear understanding of what market share you can realistically gain. In addition, it will allow you to best determine what you will need to do to gain a competitive edge. Using available data and even visiting competitors in person, you will learn how they conduct business, price their merchandise or services and manage their businesses.

The strengths, weaknesses and details of the most direct and indirect competition should be included in this section of your business plan. Without being disparaging toward any other business, you will then want to describe exactly how your business will differ and present alternatives to that which your competition is currently offering.

While putting together the competitive analysis, you want to ask yourself:

What are my competitors doing that I can learn from?
What are their strengthens and weaknesses?
What could I do better?
How can I present similar products or services in a distinctive manner?
What section of the market (if any) are they not capturing?
How are they marketing themselves?

The reader should see a clear distinction between the competition and what you hope to achieve from your business. Naturally, the more crowded the marketplace the more creativity will be required on your part. You may need to find a niche market that will allow you to compete against a more established business. For example, several privately owned bookstores have succeeded against competition from larger “superstores” by appealing to niche markets, such as targeting a store, along with special services and activities, to science fiction and occult readers.

How you can gain a competitive edge is very significant to prospective investors.

Operational Plan or Operational Strategies

This section describes how the business will operate. It will include how items will be ordered, stored, sold and/or, produced. A service company will describe how the service is offered and performed. Essentially, the objective is to walk the reader through the process of how business will be conducted.

The operations plan should include:

Who will handle specific tasks
How the business will be physically set up
Inventory details
Manufacturing details
Pricing details
Safety precautions
The need for subcontractors or freelancers

The key to the operations section of your business plan, however, is not only to explain how you will do business, but to explain your strategies and how they best facilitate the type of business you plan to do. The reasoning behind your operations plan is as important, if not more so, than the actual description of how business will be conducted. You can highlight how your method of doing business will:

Benefit your customers
Expedite transactions
Ensure quality customer service
Give you a competitive advantage

Almost every business has a need to interact with other companies. You will want to include the other companies, vendors and distributors that your business will rely on to complete transactions. If, for example, you are taking sales orders online and using a fulfillment house, you will include a mention of the fulfillment house that you are working with and how they benefit your operation. Again, the listing of vendors or outside services with which you will do business is less significant than why you have made specific choices.

Additionally, a contingency plan of action may also be necessary if your business is highly sensitive to weather conditions or factors that are out of your control. For example, the owner of a vendor driven weekly flea market/carnival might include, in his business plan, contingency arrangements in the event of inclement weather.

Over the life of the business, the manner in which you do business will change significantly, as you will need to keep up with competitors and address changes in technology, the economy and in marketing trends. In addition, your business may grow from a small one or two person operation into a larger scale business with the need for a larger space and additional staffers. A business plan written ten to fifteen years ago, for example, typically did not include sales done via the Internet or the need for computer savvy employees to handle such sales. For this reason, you should include some general projections of how you expect the operational plans of your business to change and grow over time to meet the demand for increased sales.

Management and Ownership

This section features short (one to three paragraph) biographies of the key personnel involved in forming and running the business. You will also include key staff members and members of your Board of Directors. What each member of the team brings to this business, including pertinent past experience and significant attributes, should be included. His or her key responsibilities in the company should also be noted.

The organizational structure of the business should be included so that readers will have a clear understanding of how day-to-day operations will be managed.

Generally, this is one of the easier, less time consuming sections of the business plan to put together. There is, however, a need to be careful when writing this section to avoid some common mistakes.

For example:

Be selective and use past experience that is specifically applicable to the new business.
Do not use superlatives.
Focus on a person’s work background and not on his or her business philosophy.
Be concise.
Make clear distinctions between what individual’s roles are. (i.e. don’t simply list 11 Vice Presidents).

Explaining who is behind the company and what each person brings to the table is of great interest to any potential investor.

Funding Tip
Many venture capitalists view the makeup and experience of the management team to be the most important element of a business in determining what companies to invest in. If you have a skimpy or inexperienced management team, the likelihood of getting venture funding decreases dramatically.

Sales and Marketing

This section will address sales tactics, pricing, advertising and an overall marketing plan. Your sales and marketing strategies will need to coincide with your overall company goals and vision. External influences, including changes in the marketplace, competition, and the overall economic climate will play a role in how you plan to market your business.

Manufacturing companies will want to include their methods of sales and distribution, which may include:

On-premise selling by your field representatives
Direct selling using the Internet and/or telephone
Direct on site selling through your own facility or factory outlet
Wholesale selling, using distributors or commissioned sales representatives
Other means of sales

Retailers will include an overview of their anticipated product sales. This should include all means of selling such as:

In-store sales
Internet sales
Catalog sales

Specific sales strategies including anticipated promotions, should also be included. In addition, you can use charts and, or, graphs to represent potential sales growth patterns. Be conservative in your sales estimates and back up your projections with reasoning that supports your sales plan.

Service providers need to detail how the services will be offered to the public. If, as is now the case with many businesses, hard goods and services are both sales options, indicate how both will be sold and how they will be tied together.

Pricing

Pricing needs to be carefully determined to be in line with the market you are trying to reach. Various factors will influence your pricing strategies including:

Your costs of purchasing or manufacturing goods
Time involved in performing a service or making a sale
Economic factors
Location
Competition
Market conditions
Consumer needs
Seasonal activities
Availability or exclusivity of an item or service
Manpower or labor involved

Your pricing strategy should be explained to reflect the applicable factors listed above along with your overall market strategy. For example, you may be setting your prices low to penetrate a crowded market. Conversely, you may have an offering that is unique to your demographic region and can therefore set higher prices. Or you may be pricing in line with market competition and using customer service and other means in which to set your business apart from the nearest competitors.

Marketing

Marketing will play is a significant part in the success of any new business. To create a successful marketing plan, you need to first do market research and learn as much as possible about your potential customer base. By learning the preferences and buying habits of your projected target audience you can create a marketing plan that will peak their interest and meet their needs.

Your marketing plan, outlined in the business plan, should include:

An overview of your current market
Description of your target audience
New markets you plan to tap into
Methods of reaching your target audience

You will also need to outline your positioning strategy, which is how you plan to portray your product or service in the marketplace. This will include promotional and advertising campaigns. Typically, the types of media you plan to use for advertising such as print, television, radio, online banner ads, Internet paid listings or search engines, etc., will also be included. Explain how your choice of marketing vehicles will allow you to best reach the demographic audience that you are targeting.

In building your advertising and promotional campaign you will need to define the image that you are seeking. For example, are you trying to establish your business as a high-end company or a cost saving alternative to established brands? The corporate image of the company will be part of your plan.

Targeting Your Audience
When forming a new business it is usually advantageous to focus on capturing a specific narrow market. Typically, this will allow the new business to establish itself. Trying to mass market a new business (in most industries) can be difficult because the business is competing against larger, established, well-known companies. It is also more cost effective for startup companies to go after a smaller target audiences to establish themselves.

Promotional activities or sponsoring events

You may also want to include your plans for:

Contests, coupons and free giveaways
Special incentives and discounts
Trade show representation
Search engine optimization and search engine marketing
Social media marketing

The marketing plan should provide a cross section of carefully selected methods designed to reach your target audience with the features and benefits of your product or service. It should be outlined in the business plan in a manner that shows diversity and fits within the scope and means of your overall budget.

Financial Plan

From startup costs to the day-to-day operational budget, a solid financial plan should be outlined within the overall business plan. It’s advisable to sit down with your accountant, financial advisor or CFO to outline the financial structure of the business before including it in the business plan.

The financial section should outline:

How much money is necessary to start the business
How much money will be needed over the next two, three, and even five years
How funds will be utilized
A timeline of when you will need funding

All of these elements of your initial financing should coincide with the goals and visions of the business as stated earlier in the business plan. The financing necessary to cover operations, marketing and promotion (discussed earlier).

Financial documents will include:

Break-Even Analysis
Balance Sheet
Projected Profit and Loss Statement
Projected Cash Flow Statement

You should include month-by-month details for your cash flow projections and income statement for the first year of business. Then follow up with quarterly information for two more years.

The financial plan will also include the startup budget and operations budget, indicating what you need to launch the business and how much you will need to keep the business going on an ongoing basis. Include salaries, wages, insurance costs, accounting costs, equipment costs, legal fees, taxes, cost of goods sold, advertising and promotional expenses, and all other pertinent costs in each of your two budgets.

Review Your Business Plan

Once you have completed your business plan, go back and review your work. Make sure that you:

Include all major sections
Include a Table of Contents listing where each section can be found
Cover all key points in clear and concise language
Proofread carefully for spelling and grammar
Fact check to make sure all data is accurate and all claims are substantiated
Eliminate any extraneous information
Have clearly visible contact information on a cover page and at the end of the document
Present all graphs or charts in a clear and easy to read manner
Have not over-estimated your financial projections or underestimated your time frame for launching the business

Remember, this document is typically designed to attract investors and also to provide a blueprint for the business. It should illustrate the goals, objectives, strategies and means of operations for the new business. It should, therefore, be presented in a professional manner. Neatness and attention to detail indicate that you are serious about this business endeavor.

A Mini-Plan

A condensed or "mini version" of the business plan can prove beneficial. Such a plan can be used to introduce the company to prospective investors in a concise manner, which can then be followed by sending the detailed plan to those parties who are most interested.

Such a mini-plan should contain two or three paragraphs on most of the sections that would be found in a larger business plan. This would include:

A short description of the business
An overview of the market or industry analysis
A review of the products or services the company offers
An overview of the marketing plan
A chart outlining financial projections over one, two and three years
A short biography of each of the key members of the management team

If this shortened version of the business plan is intended to raise funding, you should add how much money will be needed to start the company and where existing capital has come from to date.

The key to making such a mini-plan effective is to strip down the details into the “TV Guide” version, highlighting the most important elements of each section and presenting them clearly.

Just as with a longer, detailed business plan, you will need to review the mini business plan carefully to make sure that what you have stated is accurate and that you are not over-estimating your financial projections. Proofreading is also a must.

Often, condensing the market or industry analysis and the marketing plan into a few short paragraphs are the most difficult tasks. If you include some broad numbers to illustrate the state of the industry and then follow that up with a paragraph that highlights the three or four leading players, you can provide a general overview of the market in which you will be doing business. Conclude the section with a third paragraph highlighting how you foresee the business fitting into the market and capturing a share of the existing market. Condensing the marketing plan means you will have to outline, on a broad level, which methods you will use to attract attention to the product or service. Mention packaging, promotional materials and/or advertising that will be key to your overall marketing plan.

For a wealth of practical help and guidance in writing a business plan, check out www.bplans.com, which features a business plan outline, expert advice, and sample business plans.

On the front page of the business plan, indicate the confidential and proprietary nature of the plan. For example, you can have a legend at the bottom that states, “Confidential and Proprietary. Copyright © 2012 by ABC, Inc.”

Confidentiality

You also want to be careful about putting overly sensitive information in the business plan. If you intend to send the plan to venture capitalists or other investors, most of them will not agree to sign a Non-Disclosure Agreement or Confidentiality Agreement.