Business Plans 101: Part 1
A successful business needs a solid foundation. Most entrepreneurs’ missteps are avoidable through proper planning—taking the time to think through and work through all aspects of developing and running a business. This planning should be formalized by writing a business plan.
What is a Business Plan?
A business plan is a road map. Its primary purpose is to act as an operating blueprint for your business. Writing one forces the entrepreneur to think through all the issues necessary to build a successful business. Issues that may, at first glance, appear to be mundane and simple, such as describing your business, can become quite complex. Putting words to paper forces you, the business owner, to focus on exactly what you plan to do and how you will do it. Poor planning, or the lack of planning, is one of the primary reasons that businesses fail.
Most entrepreneurs avoid writing a business plan until they are confronted with an unavoidable obstacle: the need for financing. The first question out of an investor’s mouth, whether an angel, venture capitalist or banker, will be, “May I see your business plan?” If you do not have one, the conversation ends there. Regardless of whether you need outside financing, a business plan is an important investment. Once you start your business, you will have little time to reflect and plan—you will be caught up in the day-to-day issues of running your business. Before you start your business is the time to think about the big picture.
What Needs to be Included in a Business Plan?
There are two primary components to a business plan: (1) the narrative
or text portion (i.e., the words) and (2) the
financial portion (i.e., the numbers). The words should clearly
explain your business concept, your strategies for achieving
your goals, the competitive environment
and so on. This
information will drive your assumptions when preparing your
pro forma financial statements. What follows is a detailed description
of what should be included in the narrative portion of your business
plan. Note: A
detailed discussion of the financial portion is included in Business
Plans 101: Part 2.
Part 1. The Narrative
The narrative portion of your business plan should consiste of
the following:
1. Business Description
- Describe it simply and clearly
- What is the opportunity? In other words, what pain are you solving for paying customers?
- How much do customers currently pay to solve that problem?
- Your business model, i.e., sources of revenue
2. Products and/or Services Offered
- What are you selling?
- At what price?
- What are the features and benefits of what you are selling?
- What makes it different and desirable?
- Why will customers buy it from you?
- How will products be manufactured or services provided?
3. Market Analysis
- Industry overview—describe the size of your industry and its unique characteristics
- Define your target markets. What is the size of your target market? What is its growth potential?
- Is the market competitive? If not, why not?
- Who are your customers?
- Why will they buy from you?
- How will you reach your customers? What is your marketing/sales plan?
4. Location
- Where will your business be located? Why this site? Any zoning issues?
- How much square footage do you need?
- At what cost? Who pays for utilities?
- Are renovations or build-out required? Who pays?
5. Competition
- Give an overview of the competitive landscape
- What is your competitive advantage?
- Is it defensible, i.e., will your competitors be able to copy you easily?
- List your five closest competitors and describe:
- who they are
- their products/services
- their strengths and weaknesses
-how you will be better than them
6. Management
- Why are you (and your team) qualified to build this business?
- What is your (and your team’s) professional background and experience?
- Do you have relevant personal experience in this industry?
7. Personnel
- Who will you be hiring and at what pay rate?
- For what positions? Describe their responsibilities
- Who reports to whom?
- What is the staffing/hiring plan, i.e., when will you fill each position?
8. Application and Expected Effect of Investment/Loan
- How much money are you trying to raise?
- What, specifically, will it be used for?
If you address these issues thoroughly the reader should not be left with any obvious questions. The challenge is to have a business plan that tells a coherent story and has the numbers to support that story.