The perfect business plan
Some managers or business owners think they need a business plan when the knife hits the bone. For example, when applying for a loan with a bank, when submitting paperwork for a program/project, or when looking for investors. Then there is no way around it, the other organization requires a business plan and one must be submitted.
However, it is much more important for a company to have clarity about its business plan not for the sake of external people or organizations, but for its own sake. The business plan reflects the main objectives and strategy of the company. In this sense, a business plan is necessary for every entrepreneur, every senior executive, and members of the management team.
Below I will present to you what a detailed business plan should look like that includes all the most important sections and information.
What is a business plan?
Let's start with a definition of a business plan:
A business plan is a document that encompasses the main objectives of the company and contains detailed analyses, plans and budgets showing how the objectives will be realized.
A business plan is a kind of roadmap that leads to success. For any entrepreneur starting a business, it is a vital first step. For any entrepreneur who has been in business for a long time but does not have a business plan, this would again be a very useful step.
What does a business plan contain?
The classic structure of a professionally prepared business plan includes several important sections. They are:
1. Executive Summary
2. Environmental analysis
3. Market analysis
4. Competitive analysis
5. Marketing plan
6. Management plan
7. Operational plan
8. Financial plan
9. Annexes
Let's see what a business plan should contain, section by section.
1. Summary
The executive summary is usually placed at the beginning of the business plan, but it is best to compose it last.
The executive summary summarizes the key elements of the entire business plan and is the first thing anyone looking at your business plan will read. It saves the reader of the business plan time by briefly presenting the main idea and preparing them for the details that follow.
That's why it's important that this summary is top-notch - that it's written clearly, concisely and to the point. Its recommended length is no more than two pages.
The summary should also spark an interest in the reader to read the rest of the plan. It should be written in an interesting way and in the context of the need for a business plan - for credit, for investment, for internal use.
Generally, the executive summary will include answers to the following questions:
What is the product? Are you offering a good or a service? What needs will your product satisfy?
What is the market? What does the ideal customer look like?
What is the business model? How will your product satisfy the needs of potential customers?
What is the competition? Who are your main competitors? What is your strategy for competitive superiority? What are your unique competitive advantages?
What is your marketing strategy? What are the key elements of your marketing? How will it reach customers? How will it sell?
What is the management strategy? Who are the key executives of the company? What are their knowledge, skills and expertise?
What is the operational plan? What are the milestones for starting or growing the business? What are the key timelines and steps?
What is the financial plan? What are the key financial metrics you will be aiming for in the next one to three years - revenue, expenses, profit, etc.?
In addition, and depending on the circumstances, the business plan executive summary may include information on:
What is the company mission? What does the company do? What are its core values and business philosophy?
What is the company's story? How did it come to be? When was it founded? By whom? What are the most important facts about it, such as number of employees, production facilities or sales offices, etc.?
Remember that the executive summary is the first thing the reader of your business plan will read. Therefore, when you compose it, put yourself in the shoes of the person who will read it and ask yourself - "Does it sound exciting? Does it sound interesting?" If the answer is "No," think about what the reason is and adjust the summary.
It's no coincidence that the executive summary is often identified as the most important part of the entire business plan.
2. Analysis of the environment
The environmental analysis is the part of a business plan that presents the industry in which the company operates, including trends, major industry players, key drivers, market size and volume, market shares.
When compiling this part of the business plan, it is useful to consider the environment as made up of two parts - the external environment and the internal environment.
In terms of the external environment, you should address the following topics:
What is the industry? What is its size? What are its trends? What niches does it include?
What factors are having the biggest impact? What are the key economic, social, demographic, technological, political factors?
What is the regulatory framework? What are the key laws, procedures and rules that should be followed in the industry?
Who are the key market players? Who are the main competitors? Who are the key suppliers?
Regarding the internal environment, you should address the following topics:
What exactly do you do? What is your product? Is it a commodity? Is it a service? Is it a combination of the two?
Who is your target market? What is specific to it?
What is your unique proposition to customers? What specific customer benefit does your product bring? What specific need does it best satisfy? What makes you special to customers - lower price, higher quality, faster delivery times, better service?
What is your market share? What is the maximum market share you can capture? What are the shares of the main competitors?
What are the barriers to entry is the industry? How will you overcome these barriers?
How do you protect your product or company? What trademarks do you own? What partnership agreements have you signed? What patents, exclusive or special rights do you own?
You should be able to summarize your analysis of the external and internal environment in a few paragraphs. Some of the topics in this section will be covered in more detail in the following sections of the business plan.
3. Market analysis
The market analysis is the part of a business plan that describes the company's target market, including the main characteristics of customers and their needs. Your main task here is to show that you have an excellent understanding of the customers you want to sell to and clarity will be your market strategy.
The most important thing here is to define your target market. In marketing parlance, this is also called "segmentation".
For example, if you offer products in a B2C market (business to customer - customers are individuals), it is possible to use the following segmentation metrics:
Age. In what range does the age of customers vary? Are the customers children? Are they adults? Are they pensioners?
Gender. Are the clients male? Are they women? Are they of either sex?
Marital status. Are the clients married? Are they unmarried?
Family. What family characteristics do clients have? How many children do they have? Who else is involved in the household?
Location. Where do the clients live? How will I sell to them - locally, regionally, nationally? Internationally?
Education. What is the education of the customers? Secondary? Higher?
Income. What is the clients' average income?
Lifestyle. What are the main characteristics of the clients' lifestyles?
Religion. Are customers followers of a particular religion?
Motivation. What excites customers? What are they most interested in? What motivates them?
Size of target market. What is the size of the target market?
There are other market segmentation metrics, but for the purposes of your business plan, these above should do a great job.
For example, if I have a restaurant, my target customers could be vegetarians and vegans, men and women, from the city, aged 25-49, very well educated, high income, who lead a healthy lifestyle.
If you operate in a B2B market (business to business - customers are businesses), it is possible to use the following segmentation metrics:
Industry. Which industry do the customers work in? How long have they been in this industry?
Size. What is the annual turnover of the client companies? How many employees do they have? Are they micro firms? Small firms? Medium sized firms? Large firms?
Location. Where are the customers located? How will I sell to them - locally, regionally, nationally? Internationally?
Positions. What positions do people who make buying decisions hold? Are they senior managers? Middle-ranking? Of low rank? What is their functional (technical) specialization?
Markets served. Who are the customers of your clients? Who do they sell to? What do they sell?
Motivation. What excites customers? What are they most interested in? What motivates them?
Size of the target market. What is the size of the target market?
For example, if I offer accountancy services to other businesses, my target clients could be micro or small businesses with an annual turnover of up to £200,000, with up to 10 staff, from the city and region, with no limitation in industry or subject of activity.
You should be able to put together the market analysis in a few paragraphs. If you serve several target markets, you will need to allocate space for each of them in your business plan.
4. Competitive analysis
Competitive analysis is the part of a business plan that identifies direct and indirect competitors and presents a vision of how to overcome their strong competitive advantages.
Competitive analysis is a challenging task. To do such an analysis, accurate information is needed, and this requires research.
Depending on the target market your company is focusing on, identify the main competitors. Consider all companies that offer similar products to customers in your target market. Consider also companies that offer substitutes for your products. They may also prove to be serious competitors.
For example, if I sell laptops, my competitors may be other laptop stores in town. But it could also be the big national appliance chains. They could also be online retailers. They in turn can be domestic or foreign sites. And so on.
Next comes the hard part. You need to gather specific information about your main customers. You need to be clear:
What markets do competitors serve? What are their main market segments?
What exactly do competitors sell? What are the main features of their products? What are their main benefits?
Why do customers buy from the competition? What are the competition's unique competitive advantages? What specific needs do they satisfy?
What are the features of competitors' products? What is the quality? What are the prices? What are the delivery times? What is the service?
What is the competitors' marketing strategy? How do their customers find out about them? How do their products reach them? How do they advertise? How do they price?
What strategic advantages do competitors have? Technological advantages? Financial power? Market advantages? Experienced executives?
In the business plan you should clarify what your competitive strategy is, i.e. how your company will fight the competing firms in question. This will require you to articulate a package of features and benefits of your product that are attractive and even unique, so that you can identify an underserved niche market that your competition can capture and dominate.
For example, if I were opening an online flower delivery shop, I might try to offer customers the widest selection of fresh flowers and bouquets, with the highest quality decoration, with free delivery and a money-back option in case of dissatisfaction.
The goal of the competitive analysis in a business plan is to ultimately discover your own competitive advantage - the unique benefits that only your company can give to customers and the competition cannot.
5. Marketing Plan
The marketing plan is the part of a business plan that reveals how the firm will combine the elements of its marketing mix to get customers to buy its products.
Or, to put it another way, the marketing plan provides clarity on how and through what your products will reach customers.
To this end, the marketing plan should include information on:
Product. What are the product features and benefits? What is your unique selling proposition to the target market?
Pricing. In which price range does your product fall? Low, medium, high? What is your strategy on pricing? What is your cost price? How will you make sustainable revenue and a healthy profit?
Sales and Distribution. How will your product sell? What distribution channels will be used? What is the process your product goes through to reach your customers?
Advertising and promotions. How will the product be advertised? TV, radio, press, internet, magazines, catalogues, direct mail, point of sale advertising? How will the product be promoted? Through free samples, discount coupons, point-of-sale displays, product demonstrations?
Here you can describe all other important activities related to marketing your company - promotional materials, PR campaigns, web presence, participation in trade shows
You should offer information about the marketing plan in a few paragraphs.
6. Management plan
The management plan is the part of a business plan that describes the key managers and employees who will contribute to achieving the business objectives. The management plan also presents the management structure of the company.
People who will read your business plan will probably pay particular attention to this part to find out who the people are behind the implementation of the business idea. It is not very difficult to draw up a good-looking business plan, but when it comes to implementation, you need people with specific expertise - knowledge and skills.
In the business plan, present information on the following topics:
Ownership. What is the legal form of existence of the company? Whose ownership?
Management team. Who manages the company? What is his education, training, experience? Who manages the production? Marketing? Sales? If the company is larger, who heads the R&D and HR departments?
Organizational Structure. If the firm is larger, what is its organizational structure (chart)?
Personnel. How many and what kind of employees does the firm need? How many of them does it currently have? Are new people to be recruited, to what positions, when?
External help. What external specialists and consultants does the company use?
A business plan can only benefit if it includes the professional CVs of key executives. Such biographies should be concise and specific, ideally at 1 page each. They should describe the specific knowledge and skills that each member of the management team brings to the success of the firm.
Even if you are putting together a business plan for a very small company, including one person (you), having a well-developed management plan section will show that you are serious about your business and the human resources you will need once the business grows. This is normal. After all, a business plan is a document that looks to the future.
7. Operational Plan
The operational business plan is the part of a business plan that describes the physical assets of the company - production facilities, equipment, buildings, warehouses, offices, representative offices, and any important details related to the product manufacturing process.
The operating plan provides information on:
Production process. How is the product manufactured? What are the main stages? What is the production lead time? What are the main problems within production? What are the risks?
Procurement. What does the supply chain involve? Who are the key suppliers? Who are the alternative suppliers in case work with the current ones is terminated?
Quality control. How is quality control implemented? Is the company certified to the rules of a particular quality system?
Tangible assets. What tangible assets does the firm own? What buildings? What machinery and equipment? What materials? What other important tangible assets does the firm own or need to own to ensure smooth production of the product? At what value are they?
Inventories. How are inventories of finished goods, raw materials, and supplies stored and tracked?
Cost. How is the cost of the product calculated?
You should be able to assemble the operating plan within a few more detailed paragraphs. Some parts of the operating plan may require more detailed description, but this is normal.
8. Financial plan
The financial plan is the part of a business plan that provides financial analysis and projections of the company's financial position. It is here that information on the company's balance sheet, income and expenses, and cash flows (or projections thereof) are provided.
Depending on the specific needs in relation to the preparation of a business plan, information should be given here on:
Sources of financing. Is borrowed capital used? Equity? Equity? Are subsidies used?
Repayment plan. How will loans be repaid if borrowed funds are available?
Projected income and expenditure. Sales revenue by product (goods or services). Costs of salaries, rents, raw materials, storage costs, marketing costs, rent, consumables, maintenance, etc.
Projected cash flows. What are the cash trends by month, based on projections of expected revenues versus assumed expenses.
The financial plan should be prepared using tables, be concise, reasonable and well justified.
9. Annexes
In this part of the business plan, which is normally the last, any additional useful information relevant to the business idea should be included. This may include:
- Pictures of the products;
- Copies of contracts, agreements, patents;
- Certificates from various organizations;
- Market research.
What should be the length of a business plan?
Probably the most correct answer is "It depends". It depends for what purposes the business plan is being prepared, for what company, by what managers, etc.
As a rule, if the business plan is being prepared for presentation to other people or organisations, for example when seeking funding, it should be more detailed. If the business plan is being prepared more for internal purposes, for example to outline the main objectives and strategy of the company, it may be shorter. But it may not be.
As a guideline, the length of the executive summary could be 2-3 pages, the main body of the business plan could be 10-20 pages, and all the details, as long as there are any, could be added in appendices to the plan. In this way, anyone reading the business plan will be able to briefly review the basic information, but also delve into the details if they wish.
Some executives or entrepreneurs may find such length too restrictive for their business, especially if the subject matter is more complex or the product range is broader. In such cases, it is possible for the business plan to reach 50, 100 or even more pages.
I personally am not a fan of such an approach. I believe that a business plan should not aim to describe absolutely every single detail of a company's plans and strategy. It is rather important to present the main ideas and the most important things.
Therefore, I believe that a business plan should be as concise, specific and clear as possible in order to do real work. A length of 15-25 pages should generally suffice.
A business plan of... 1 page (?!)
Various business publications around the world have been commenting on a curious topic in recent years - the one-page business plan. They argue that it is a worthwhile exercise for an entrepreneur or executive if they can reduce their business plan to the bare minimum and fit all the essentials on exactly one page.
In practice, there is not much difference between a one-page business plan and a summary of the plan (the first part). But while the executive summary is usually contained in 2-3 pages, the one-page business plan should be contained in one page.
The following structure can be used for this purpose:
Customer problem description - needs, wants
Your solution - good or service;
Target market - who are your customers;
Competitive advantage - what makes you unique, what are you best at;
Marketing - how your product will reach customers;
Management team - who will manage the processes;
Financial forecast - revenue, expenses, cash flow, capital needs.
In order to get everything on one page, a paragraph should be devoted to each point. Such a minimalist approach provokes to think in depth about the essence of the business.
Thus, in practice, the one-page business plan will show the business model of the company or in other words - how you will make money.
In summary
As you can see, preparing a business plan is a serious task. But not impossible if you have clarity about its structure.
I will also point out that a business plan is the so-called "first creation" of things. It is the strategic ideas of the company's management put on paper. It is only when this 'first creation' of things is successfully implemented that the so-called 'second creation', i.e. the translation of ideas into action, can be considered a success.
With this in mind, you will not regret taking the time for business planning. This time will pay off later in the form of more focused and conscious actions in the management and development of your company.